1 INTRODUCTION 10 3 MANAGEMENT BOARD PROPERTIZE 17

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3 TABLE OF CONTENTS PROPERTIZE IN BRIEF 1 INTRODUCTION 10 2 THE NATIONALISATION OF PROPERTIZE Nationalisation Pro-forma balance sheet Status 403-declaration, bank license and fiscal unity The Propertize shares NLFI 16 3 MANAGEMENT BOARD PROPERTIZE 17 REPORT OF THE MANAGEMENT BOARD 4 STRATEGY AND OUTLOOK Overall strategy and ambition Strategy update Outlook RISK, CAPITAL MANAGEMENT & ALM AND FUNDING Risk and capital management Financial risks Capital management Non-financial risks New regulations and their implementation Developments in the risk management organisation Funding and credit ratings 26 6 FINANCIAL OUTLINES AND DEVELOPMENT PROPERTIZE 27 7 HUMAN RESOURCE MANAGEMENT (HRM) 29 REPORT OF THE SUPERVISORY BOARD 8 REPORT OF THE SUPERVISORY BOARD Themes Important subjects and discussions Composition and functioning of the Supervisory Board Cooperation Employees Composition of the Management Board Meetings of the Supervisory Board Most important subjects Presence of the Management Board Presence of the external auditor Meetings of committees Audit & Risk Committee (ARC) Nomination Committee (NC) 38 PROPERTIZE ANNUAL REPORT

4 8.5 Annual financial statements Remuneration report Remuneration policy Management Board Remuneration of the Management Board Remuneration of the Supervisory Board Closing words 41 CORPORATE GOVERNANCE 9 CORPORATE GOVERNANCE The Management Board Composition and functioning Responsibilities, curriculum vitae and other positions The Supervisory Board Composition, appointment and functioning Responsibilities, curriculum vitae and other positions Dutch Corporate Governance Code and Banking Code 46 FINANCIAL STATEMENTS 10 CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheet Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated cash flow statement ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED FINANCIAL STATEMENTS Adoption of the financial statements General information Going concern Basis of preparation Statement of IFRS compliance Changes in published Standards and Interpretations effective in Interpretations of existing standards or amendments to standards, not yet effective in Accounting principles used in the preparation of the financial statements Accounting principles applied to balance sheet items Functional currency and reporting currency Main accounting principles, estimates and assumptions The use of estimates and assumptions in the preparation of the financial statements Provision for impairment of loans and advances to customers Net realisable value of property projects Accounting principles used for consolidation Subsidiaries Associated companies and joint ventures Elimination of group transactions Foreign currencies Accounting based on transaction date and settlement date Offsetting of financial instruments Discontinued operations or assets held for sale Information by segment Specific balance sheet accounting principles Tangible assets 63 4 PROPERTIZE ANNUAL REPORT 2013

5 Loans and advances to customers Property projects Cash and cash equivalents Taxes Deferred tax assets and liabilities Current tax assets and liabilities Other receivables Other assets Equity Amounts due to banks Provisions Employee benefits Other provisions Other liabilities Specific statement of comprehensive income accounting principles Property finance loan portfolio Interest income Interest expenses Property projects The share in result of associates and joint ventures Result on financial instruments Other operating income Expenses Staff costs Depreciation and amortisation of fixed assets Service charge expenses & fee and commission / management expenses Other operating expenses Impairment charges Contingent liabilities and commitments Cash flow statement RISK MANAGEMENT AND ORGANISATION Risk management in transition Risk management organisation Framework for risk management Risk classification FINANCIAL RISKS Introduction Credit risk Credit risk overview Credit risk profile and credit risk management Credit risk Propertize Managing credit risk Propertize Credit risk loans and advances to customers Exposures to higher-risk Eurozone countries Market risk Managing market risk Price risk property projects Interest rate risk Sensitivity test for interest rate risk Effective interest rates Currency risk Liquidity risk 83 PROPERTIZE ANNUAL REPORT

6 14 FINANCIAL INSTRUMENTS Fair value of financial instruments Notes to the valuation of assets and liabilities Hierarchy in determining the fair value of assets and liabilities NON-FINANCIAL RISK MANAGEMENT Management of non-financial risks CAPITAL MANAGEMENT Going concern capital management Objectives Capital and solvency position NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Tangible fixed assets Investments in associates and joint ventures Property projects Loans and advances to customers Deferred tax assets and liabilities Other receivables Other assets Cash and cash equivalents Equity Provisions Specification provision for employee benefits Other provisions Amounts due to banks Other liabilities Off balance sheet commitments Contingent liabilities Operational lease commitments Legal proceedings Nationalisation Claims and legal cases Related Parties Positions and transactions between Propertize, associated companies and joint ventures Positions and transactions between Propertize and SNS Bank Positions and transactions between Propertize and the Dutch State / NLFI Positions and transactions with managers in key positions of Propertize Subsequent events Net interest income Property projects income Other income Staff costs Other operating expenses Impairment charges Taxation COMPANY FINANCIAL STATEMENTS Company balance sheet Company income statement Principles for the preparation of the company financial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS PROPERTIZE ANNUAL REPORT 2013

7 19.1 Cash and cash equivalents Loans and advances to customers Subsidiaries Receivables from subsidiaries Receivables from affiliated companies Other receivables and Other assets Amounts due to group companies Amounts due to banks Other liabilities Provision investments in subsidiaries Equity Issued share capital OFF BALANCE SHEET COMMITMENTS Guarantees Other off balance sheet commitments RELATED PARTIES SUBSEQUENT EVENTS AUDIT FEES OVERVIEW OF PRINCIPAL SUBSIDIARIES 117 OTHER INFORMATION 25 OTHER INFORMATION Provision regarding profit or loss appropriation Independent auditor s report 120 PILLAR III REPORT 26 PILLAR III REPORT 124 PROPERTIZE ANNUAL REPORT

8 Propertize aims to add value to its real estate and property finance portfolio PROPERTIZE IN BRIEF

9 Fragment of New Babylon in The Hague, part of the real estate owned portfolio of Propertize

10 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE INTRODUCTION THE PAST YEAR WAS AN INTENSIVE ONE FOR PROPERTIZE, BEING LARGELY DEVOTED TO PREPARE FOR THE ORGANISATION S SPIN-OFF AND TO DEVELOP A STRATEGY DESIGNED TO RESULT IN THE COMPLETE WIND-DOWN OF ITS PROPERTY AND PROPERTY FINANCE PORTFOLIO IN THE COMING TEN YEARS. Until the nationalisation on 1 February 2013, SNS Property Finance (as of 1 January 2014 known as Propertize) was part of SNS Bank and therefore also of SNS REAAL. When SNS REAAL was nationalised, the Dutch Minister of Finance announced that an independent organisation would have to wind-down the property and property finance portfolio as cost-effectively and profitably as possible in the medium-term. After obtaining the approval of the European Commission on 19 December 2013, the spin-off became official as of 31 December Since that date, the shares in Propertize are held by Stichting Administratiekantoor Beheer Financiële Instellingen (NLFI), a Dutch State-controlled agency managing the shareholdings in a number of nationalised Dutch financial institutions. PROPERTIZE S SPECIAL ASSIGNMENT Propertize was set up with a time horizon of ten years, to give the organisation sufficient time to wind-down its portfolio as well as possible in order to obtain the highest possible proceeds for the Dutch State and ultimately the tax-payer at the lowest possible cost, while minimising the portfolio risk and the risk of claims and consequential losses. This period will create time and space to explore what is best for the property that Propertize owns or finances, and this in its turn will result in value creation as the portfolio is winding down. The wind-down must be conducted in a controlled, transparent and professional manner, with high ethical standards. Furthermore, Propertize is fully aware of the turbulent past and of the context in which commercial property and society s interests intersect. All this has led to the following mission: PROPERTIZE WILL WIND-DOWN ITS PORTFOLIO IN THE COMING TEN YEARS WITH INTEGRITY AND IN A CONTROLLED, TRANSPARENT AND PROFESSIONAL MANNER. A QUICK AND CONTROLLED WIND-DOWN FOR THE HIGHEST POSSIBLE PROCEEDS AT THE LOWEST POSSIBLE COSTS IS IN THE PUBLIC INTEREST. IN EXECUTING THIS TASK, PROPERTIZE WILL MINIMISE THE PORTFOLIO RISK AND THE RISK OF NEW CLAIMS AND CONSEQUENTIAL LOSSES. WE AIM TO ACHIEVE THIS AMBITION WITH A HIGH-QUALITY AND PROFESSIONAL TEAM. 10 PROPERTIZE ANNUAL REPORT 2013

11 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT PROPERTIZE S AMBITION The wind-down strategy which Propertize has developed and which commenced in 2014 immediately reflects our ambition. Our goal is not just to wind-down our portfolio within ten years with the right people and an efficient organisation, but Propertize also aims to add value to its property and property finance loans so that losses ultimately will be lower than the 2.8 billion of the Cushman & Wakefield valuation presently taken into account in the transfer value. Our ambition is therefore to repay the additional capital of 500 million which the Dutch State provided, and to manage without calling on the guarantees by the Dutch State. THE TURNAROUND IN 2013, BEFORE THE COMMENCEMENT OF 2014 This wind-down strategy as defined in 2013 and of which the execution started in 2014 is a major break with the past, when the principal object was in essence to wind-down the portfolio as quickly as possible in order to reduce the risk weighted assets (RWA reduction). Propertize is now tasked with winding-down the portfolio as favourably as possible, i.e. with the highest possible proceeds, the lowest possible costs and the lowest possible risks. In order to execute this special task going forward, Propertize has made a turnaround in For that reason, three considerations were high on the agenda in 2013: developing the new wind-down strategy, further reinforcing the organisation and its structure and filling in the posts which are necessary as an independent organisation for successfully phasing-out in the coming years. Together with the expected recovery of the property markets, these are important pre-conditions for achieving our wind-down strategy. (I) THE WIND-DOWN STRATEGY IN MORE DETAIL The formulated wind-down strategy is based on a bottom-up and risk-based analysis of approximately 80% of the exposure which the organisation conducted internally in the second half of When executing this strategy, Propertize will combine the optimisation of cash flows with picking well-timed exits and reducing risks. The cash flow will not only cover the operating costs, but also provide the opportunity for (restricted) investments in Propertize s own property and limited additional finance on existing loans, provided that these contribute to a further improvement of the cash flow and the expected exit values. Propertize is however ruling out project development and finance for new clients. In order to achieve maximum value, the portfolio has been broken down into three buckets: Healthy, Value Retention and Creation and Disposition. The property in each of these buckets has more or less the same profit-making potential. By proceeding in this way, Propertize can focus on optimising the cash flow from the portfolio in the coming ten years and utilise this period for reducing exposures, which will make well-timed exits possible. At the same time, good customer relation management and attention for the customer will be important for Propertize to achieve its special task. The shift in focus away from RWA-reduction leads to room to look at what is good for real estate. It is our conviction that this results in a better outcome for both Propertize and our customers. Healthy (23% of the net portfolio) In this category, Propertize will concentrate on client retention until the end of their term, also to cover our operating costs. These concern loans on which clients pay interest and make repayments and on which no losses on the outstanding balance are expected in the mediumterm. Loans can be extended if this will reduce risk and if it is for a period within the ten-year period granted to Propertize. Active portfolio management through account management and regular monitoring will improve the cash flow. PROPERTIZE ANNUAL REPORT

12 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Value Retention and Creation (64% of the net portfolio) It may be possible to retain or create value on the assets in this category, which are mainly Dutch loans and property assets. Obviously, the cash flow and potential value must be higher than the costs of keeping the asset. Active asset management geared to the individual asset is essential for this. Existing loans can be increased or additional investments are possible if individual business cases are favourable. Disposition (13% of the net portfolio) In some cases there can be no conclusion other than that there is no scope for value creation and in that case it is best for Propertize to seek the quickest possible exit so that it can minimise its losses. After all, prolonged retention of such assets will only lead to an increase in losses. Minimising management costs, a systematic dismantling of legal structures and restricting the risk of new claims have greater priority in that case. (II) THE ORGANISATION Aside from the strategy, a lot of attention has been devoted to the continued development of the organisation and its structure. It is important that Propertize can keep the reins on the portfolio and can safeguard the quality of its work. This is now possible as a result of the reinforcement of the administrative organisation and the internal control system. Propertize has also made a conscious decision to outsource certain activities, such as some of our IT. There will be constant attention for maintaining the quality of the organisation in the coming years. Special attention has gone out and will go out to the integrity of the organisation and its employees. After the developments at the end of 2012 and the begin of 2013, Propertize is more than aware of the importance of integrity to its special task. The focus on the quality and integrity of the organisation is reflected more and more within Propertize and our employees. (III) STAFF After my appointment as Chief Executive Officer in June, and Reinout van Riel as Chief Restructuring Officer in July (now: Chief Portfolio Officer), together with Jack Mondt as Chief Finance & Risk Officer, Propertize s Management Board is now complete. Other key positions within Propertize have now been filled and new staff have started work in a range of positions. During 2013, both existing and new employees have done their utmost for the organisation, despite all the attention and turmoil up to and after the nationalisation and from other developments. The effort by our employees has contributed considerably to the foundation for Propertize to fulfill its special task over the coming years. A word of thanks on behalf of the Management Board is therefore well deserved. The interest in a job within Propertize was and is considerable. The labour market campaign under the slogan Steep learning curve aimed at young professionals with 3-5 years experience played an important part in this. This campaign clearly defined the type of organisation Propertize wants to be in the coming ten years and what type of people it is looking for. In total, the number of internal staff increased to 109 FTE. An important factor in the growth of the number of staff was the fact that, as a result of the spin-off, Propertize itself would again become responsible for staff departments such as Audit, Communications, IT, Legal and Risk Management (including ORM). In addition to this, the nature of the work has changed as a result of the extension of the wind-down period and the departure from the focus on RWA reduction. Finally, we aim to reduce the temporary filling of positions by external members of staff in favour of permanent staff; this way we can invest in the knowhow of our organisation and our staff. As from 2015, we expect the number of staff to decline gradually as a result of the wind-down of the portfolio. 12 PROPERTIZE ANNUAL REPORT 2013

13 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT FINANCE REQUIREMENTS In order to properly complete the wind-down strategy, it is important that Propertize has sufficient funding. That - very important - pre-condition was achieved in early 2014: within six weeks of the start of its funding programme Propertize had already raised the finance it needed in 2014, a total of 3.89 billion, by placing medium-term notes with a value of 2.6 billion and 1.29 billion in Euro Commercial Paper. Propertize used these funds to redeem all its loans from SNS Bank N.V. ( 4,054,900,000) as of 4 April Due to repayments and the reduction of its exposure, Propertize subsequently did not need to raise external funding for the full amount. By means of this funding we can execute our task within the financial boundaries laid down by the Dutch State: a capital injection of 500 million and a guarantee for a maximum of 4,054,900,000 for our funding programme. As a result Propertize expects that it will not need any further capital injection or additional guarantees. OUTLOOK The recovery of the real estate markets will eventually benefit the execution of Propertize s winddown strategy. On the whole, the number of transactions is increasing, although sometimes there is still question of considerable discounts. We see this as a vindication of the decisions we have made for Propertize s wind-down strategy. In our view this strategy will enable us to successfully complete our special assignment in the coming ten years: retaining and creating value within our portfolio in the interest of the Dutch tax-payer. Hans Copier Chief Executive Officer PROPERTIZE ANNUAL REPORT

14 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 2 THE NATIONALISATION OF PROPERTIZE 2.1 NATIONALISATION As an independent organisation Propertize focuses on winding-down its portfolio of property and property finance loans, for which it has been given a period of ten years, starting from the spin-off on 31 December This special assignment is a result of the nationalisation of SNS REAAL N.V. (SNS REAAL) on 1 February 2013, when the Dutch Minister of Finance announced that the SNS REAAL property and property finance portfolio would be separated and placed in an independent organisation. Propertize prepared itself for the spin-off in the course of 2013 in collaboration with SNS REAAL. An important priority was providing a structure for the staff and supporting departments (such as IT) within Propertize, because after the spin-off Propertize could no longer rely on the clustering of these activities within SNS REAAL. SNS REAAL will continue to provide support for a limited period in a number of areas on the basis of service level agreements and a conscious decision to outsource certain other activities has been made. The spin-off of Propertize s activities related to the portfolio of property and property finance loans is part of the restructuring plan which the Ministry of Finance submitted to the European Commission (EC) on 19 August 2013 and which was approved by the EC on 19 December On 24 December 2013, the Dutch central bank (De Nederlandsche Bank / DNB) issued a Certificate of No Objection for the spin-off of the property activities and on 31 December 2013, SNS Bank N.V. (SNS Bank) transferred the shares in the organisation to the State. That same day, the State subsequently transferred the shares to the foundation Administratiekantoor Beheer Financiële Instellingen (NLFI), the holding entity for the shareholdings of the Dutch State in a number of nationalised financial institutions, and NLFI subsequently became 100% shareholder. The company started operating under the name of Propertize B.V. (Propertize) as of 1 January The European Commission agreed with the SNS REAAL restructuring plan on 19 December According to the plan, SNS Bank should dispose of SNS Property Finance in order to allow for a stand-alone and proper wind-down of the property and property finance portfolio. The transfer value of the portfolio was determined by the Ministry of Finance, based on calculations of Cushman & Wakefield, at 2.8 billion below the book value as at 30 June Since then, the book value of the portfolio reduced to 5,726 million, representing a 1,833 million decline in value (incurred loss basis). For the net amount of the difference between the transfer value and the losses incurred (which amounted gross 967 million), the capital of Propertize was strengthened by 725 million (net) prior to the transfer on 31 December Table 1: Follow-up impairments on the portfolio (pre-tax) (In millions) Result Balance Cushman & Wakefield ,800 Impairments and discounts HY (776) Impairments and discounts FY-2013 (1,057) Remaining value (1,833) 967 After the transfer the Dutch State paid 500 million in share premium into Propertize s shareholders equity. 400 million of these liquidities were then used to redeem SNS Bank s funding, of which 4,054,900,000 was still outstanding at the end of In order to also repay the remaining outstanding amount to SNS Bank as quickly as possible, Propertize executed a funding programme for a maximum of 4,054,900,000 starting in February Within six weeks of the commencement of the programme the new external finance had been raised. The Dutch State had issued a guarantee for this full amount. 14 PROPERTIZE ANNUAL REPORT 2013

15 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 2.2 PRO-FORMA BALANCE SHEET The following balance sheet shows the pro-forma consolidated balance sheet at the end of The adjustment is the difference between the actual carrying amount of the portfolio and the transfer value as at 30 June Table 2: Consolidated balance sheet Actual Adjustment Pro forma (In millions) Assets Tangible assets 2 2 Investments in associates 2 2 Property projects Loans and advances to customers 4,916 (967) 3,949 Deferred tax assets 9 9 Other receivables Other assets Cash and cash equivalents Total assets 6,057 (967) 5,090 Equity and liabilities Share capital and share premium reserve 3,117 3,117 Other reserves (1,068) (1,068) Retained earnings (823) (725) (1,548) Total equity 1,226 (725) 501 Other provisions Deferred tax liabilities 249 (242) 7 Amounts due to banks 4,409 4,409 Corporate income tax 8 8 Other liabilities Total equity and liabilities 6,057 (967) 5,090 The adjustment at year-end 2013 of 967 million reflects the expected losses as per that date on both property projects and loans and advances that were taken into account to determine the transfer value as at 30 June If these will actually materialize in future reporting periods the losses will be accounted for in future reporting periods. However this hypothetical split cannot be made on the actual figures, because there s no split of the expected losses to property projects and loans and advances to customers. 2.3 STATUS 403-DECLARATION, BANK LICENSE AND FISCAL UNITY On 31 December 2013, SNS REAAL NV and SNS Bank NV withdrew their guarantees as referred to in Book 2, Section 403 of the Dutch Civil Code for SNS Property Finance BV (per 1 January 2014 renamed to Propertize BV) and its subsidiaries BPF Onroerend Goed Lease en Financieringen BV, De Haarlemsche Maatschappij voor Hypothecaire Financiering BV, SNSPF Financiering Participaties BV (per 1 January 2014 renamed as PRPZ Financiering Participaties BV) and SNSPF Interim Finance BV (per 1 January 2014 renamed as PRPZ Interim Finance BV). As of that date SNS REAAL NV and SNS Bank NV are no longer jointly and severally liable for the obligations of these companies resulting from legal acts (rechtshandelingen) executed by them. These withdrawals have been registered with the Dutch Chamber of Commerce and have been published in the Staatscourant. SNS Bank NV issued separate guarantees to a number of counterparties of Propertize in the past. Following the withdrawal of the 403 declarations and termination of the remaining commitments arising from the 403 declarations, these guarantees will remain in place. PROPERTIZE ANNUAL REPORT

16 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE As was the case in previous years, during 2013 Propertize was supervised by the Nederlandsche Bank (Dutch National Bank or DNB). In anticipation of its separation of SNS Bank N.V. Propertize engaged in constructive dialogue with his stakeholders, including DNB, to develop a sustainable regulatory framework. In view of his unique situation Propertize is in need of a tailor-made framework. Accordingly, Propertize will file an application with DNB to withdraw its banklicense, after the adoption of these financial statements. Following Propertize s application, DNB is expected to agree to withdraw Propertize s bank license, whilst simultaneously instructing Propertize to wind-down its remaining activities and operations in accordance with the provisions of section 1:104 paragraph 3 of the Dutch Financial Supervision Act. DNB will impose several conditions and instructions on Propertize, all aimed at ensuring that such winding-down takes place in an integer and controlled way for as long as the wind-down operations shall last, in accordance with (i) applicable laws and regulations, (ii) instructions previously provided by DNB, and (iii) the working arrangements provided by NLFI. The DNB instruction to wind-down Propertize s activities pursuant to aforementioned section 1:104 paragraph 3 of the Dutch Financial Supervision Act, ensures a tailor made DNB supervisory regime regarding Propertize s wind-down activities, enabling Propertize to wind-down its activities as currently contemplated. With the transfer of the shares of SNS Property Finance, the fiscal unity with SNS REAAL was ended. As from 31 December 2013, Propertize BV, together with a major part of its Dutch subsidiaries, constitutes a fiscal unity for corporate income tax. For VAT purposes the fiscal unity started on 1 January All companies within the Dutch fiscal unity are jointly and severally liable for corporate income tax debts and VAT debts stemming from the fiscal unity. Up until the time of separation on 31 December 2013, Property Finance was part of the fiscal unity of SNS REAAL. Based on the advanced tax ruling with the Dutch Tax Authority, it was determined that the reduction in value of the portfolio ( 2.8 billion) that was used for its transfer, is directly and fully recognised for tax purposes. All financial relationships associated with tax between Property Finance and SNS REAAL were settled at year-end THE PROPERTIZE SHARES On 31 December 2013 SNS Bank NV transferred the shares in SNS Property Finance BV to the Dutch State. The Dutch State transferred these shares to NLFI. NLFI issued exchangeable depositary receipts for shares to the Dutch State in return for acquiring and holding, in its own name, the share capital in SNS Property Finance BV. The number of authorised share capital (250,000) was reduced to 50,003 end of 2013, the same as the number of issued and paid up shares. The nominal value of the shares, originally 50, was reduced to 1. As the reduction did not involve a return to the shareholders, the value was transferred to the share premium reserve. The number of shares outstanding (50,003) remained unchanged in For more information on the number of shares and nominal value, please refer to section Issued share capital. Dividend In view of the net loss, the Management Board has resolved, with the approval of the Supervisory Board, to pass over the dividend for Key dates in 2014 The General Meeting of Shareholders was held on 26 June NLFI As from 31 December 2013, NLFI is the sole shareholder of Propertize. NLFI is by law responsible for the management of interest of the State in Propertize. NLFI is publicly accountable for this 16 PROPERTIZE ANNUAL REPORT 2013

17 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT statutory duty. To fulfil this task, NLFI has made arrangements with Propertize regarding its governance. These arrangements have been laid down in a draft Memorandum of Understanding (MoU) which is expected to be signed after the adoption of these financial statements. Amongst other things, the MoU describes that Propertize has to comply with the Dutch Corporate Governance Code, the way members of the Management Board and Supervisory Board are appointed, and the way NLFI shall be informed about decisions of the Management Board. 3 MANAGEMENT BOARD PROPERTIZE Hans Copier, chairman of the Management Board (CEO) Hans Copier (1957) has been chairman of the Management Board since June In addition he is responsible for the staff departments Strategy & Special Projects, Internal Audit, Communications, Legal & Compliance, HR and Facility Services. Jack Mondt, Chief Financial & Risk Officer (CFRO) Jack Mondt (1959) has been Chief Financial & Risk Officer of the Management Board since March Additionally he is responsible for the departments Risk Management, Provisions & Appraisals, Finance & Control, Business Control, Treasury, Tax and Operations & IT. Reinout van Riel, Chief Portfolio Officer (CPO) Reinout van Riel (1970) has been member of the Management Board since July As Chief Portfolio Officer he is responsible for all the business assets of Propertize which are handled in the departments Loan Management, Restructuring & Recovery, Asset Management and Contract & Business Support. Abridged CVs and additional positions of the Management Board members can be found in section of this annual report. PROPERTIZE ANNUAL REPORT

18 The past year was largely devoted to laying the foundations for Propertize REPORT OF THE MANAGEMENT BOARD

19 Fragment of Belval Plaza, Luxembourg, part of the real estate owned portfolio of Propertize

20 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE REPORT OF THE MANAGEMENT BOARD 4 STRATEGY AND OUTLOOK 4.1 OVERALL STRATEGY AND AMBITION Propertize will wind-down its portfolio over a period of ten years, with integrity and in a controlled, transparent and professional manner. Within this assignment, its strategic objective is to ensure maximum proceeds from the portfolio with the lowest possible risks and the lowest possible costs. Propertize s risk profile is expected to entail that the Dutch State will not need to provide extra capital or guarantees and, upon the completion of the wind-down, Propertize furthermore expects to be able to repay the 500 million which the State made available as shareholders equity. Important pre-conditions for realising this strategy are the recovery of the property and property finance markets and the build-up and retention of a high-quality organisation. Our ambition During the wind-down, Propertize will focus on adding value to the underlying property. This includes reducing the risks of new claims and consequential losses. Propertize s ambition is to achieve lower losses than the Cushman & Wakefield valuation that led to a 2.8 billion portfolio value reduction. During the wind-down, operating costs will be compensated by (interest) income and other proceeds, so that Propertize will be self-supporting. Achieving maximum proceeds Optimising cash flow, picking well-timed exits and reducing risks are designed to ensure maximum proceeds for Propertize. Propertize aims to maintain and / or improve its clients cash flow and, as long as cash continues to flow, Propertize can use the regular repayments to reduce its exposure. Propertize has the mandate to use this cash flow to invest in its own property and also to provide additional finance to existing clients, provided that this is necessary to optimise the cash flow and improve the expected exit value. Propertize is ruling out project development and finance for new clients. With the ten-year wind-down period, Propertize anticipates that the markets will recover, allowing the company to pick the best time for an exit, i.e. at the point at which the real estate market picks up and the financing or re-financing possibilities improve. Propertize aims to sell off assets to which it can add no value immediately, or after foreclosure. The segmentation of the portfolio In undertaking its wind-down strategy, Propertize has broken its portfolio down into three buckets: Healthy, Value Retention and Creation and Disposition. Healthy (23% of the net portfolio) Our strategy for assets on which clients are paying interest and making repayments, and for which no losses are expected on the outstanding balance in the medium-term, is geared to retaining clients until the end of the term and covering our operating costs. When risk reduction is possible, it may even be possible to grant an extension, provided that this is within the period stipulated in the shareholder s mandate. Cash flow will be further optimised as a result of active portfolio management by focusing on account management and by monitoring the underlying cash flow. Value creation can also result from standardising and streamlining data and documentation. 20 PROPERTIZE ANNUAL REPORT 2013

21 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Value Retention and Creation (64% of the net portfolio) This segment mainly consists of Dutch loans and properties that are in scope for creating or optimising value in the short or medium term. Precondition is that the cash flow and the potential value must outweigh the costs of retaining the property (or the loan). Active asset management is essential in this bucket. It may be possible to increase the loan or make additional investments, provided that this is necessary for optimising the cash flow and improving the expected exit value, and this is possible only with a positive individual business case. The risk of new claims must be restricted as much as possible. Disposition (13% of the net portfolio) In some cases, it is necessary to acknowledge that certain assets have no scope for value creation, and prolonged retention would have negative financial implications. At that point, it is in Propertize s best interest to seek the quickest possible exit to minimise losses. Until the exit, management costs must be minimised, legal structures must be dismantled in a controlled manner and the risk of new claims must be reduced as much as possible. 4.2 STRATEGY UPDATE The past year was largely devoted to laying the foundations for Propertize: preparing the organisation for the spin-off as of 31 December 2013 and developing the wind-down strategy for the coming ten years. The separation from SNS REAAL Staff and supporting departments, such as Communications, IT, Legal and Risk Management, have been created within Propertize, because the clustering of these activities within SNS REAAL is obviously no longer available to Propertize as an independent organisation after the spin-off. SNS REAAL will continue to provide Propertize with limited support for a limited period, for example on legal matters, on the basis of service level agreements. Developing the wind-down strategy The wind-down strategy for the Propertize property and property finance portfolio is based on a bottom-up and risk-based analysis conducted internally by the organisation of approximately 80% of the portfolio in the second half of The desired organisation and internal controls In 2012, Propertize initiated an investigation into possible conflicts of interests within Propertize. This investigation was continued in In early 2013, Propertize launched a project to further reinforce the Administrative Organisation and the Internal Control system. After the appointment of the new Management Board and an investigation of the Dutch Central Bank into Propertize s controlled business resulting in a formal directive, the work was stepped up in the second half of 2013 and in early 2014 a revised Administrative Organisation and Internal Control system was designed and implemented. The objective was to ensure integrity and achieve professional, transparent and controlled business management with clearly-defined tasks and responsibilities, so that Propertize can function properly as an independent organisation, with satisfactory internal controls in line with the Three Lines of Defense principle. Other important aspects that were addressed were the filling in of job functions and profiles, the risk management parameters, the recovery of case files and internal management. PROPERTIZE ANNUAL REPORT

22 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 4.3 OUTLOOK 2014 As part of the wind-down strategy, Propertize has identified the following five strategic themes specifically for These themes will flesh out the wind-down strategy further, on the basis created in Propertize in control: the implemented Administrative Organisation / Internal Control system will enable the organisation to manage processes, to control these (in control) and to have transparent accountability. 2 Value creation by selling off assets: Propertize will create value by undertaking a professional and hands-on translation of its exit strategy per individual client. 3 Clear monitoring: Propertize knows at any time the situation in relation to the wind-down strategy, and management reports on that subject will be clear and unambiguous. 4 Transparent external accountability: Propertize is accountable to society in a transparent manner and thereby earns its license to operate. 5 Reinforce and retain human capital: the Propertize staff is crucial for realising this special assignment. Given the uncertain economic climate and the developments on the real estate markets, Propertize refrains from comments or predictions about future results. 5 RISK, CAPITAL MANAGEMENT & ALM AND FUNDING 5.1 RISK AND CAPITAL MANAGEMENT The spin-off of Propertize s activities related to the portfolio of property and property finance loans was part of the restructuring plan which the Ministry of Finance submitted to the European Commission (EC) on 19 August 2013 and which was approved by the EC on 19 December On 24 December 2013, the Dutch central bank (De Nederlandsche Bank / DNB) issued a Certificate of No Objection for the spin-off of the property activities and on 31 December 2013, SNS Bank N.V. (SNS Bank) transferred the shares in the organisation to the State. That same day, the State subsequently transferred the shares to the foundation Stichting Administratiekantoor Beheer Financiële Instellingen (NLFI), the holding entity for the shareholdings of the Dutch State in a number of nationalised financial institutions, and this subsequently became 100% shareholder. The company started operating under the name of Propertize B.V. (Propertize) as of 1 January Prior to the spin-off of Propertize on 31 December 2013, Propertize s risk management was part of SNS REAAL s risk management. With the exception of credit risk, SNS REAAL performed many of the risk management activities for Propertize, such as Operational Risk, Asset and Liability Management (ALM), capital management and funding activities. As of 31 December 2013 Propertize itself has responsibility for the entire risk management. Propertize has adjusted the structure of its risk management activities to its new status as an independent company. The risk management function will continue to be adapted as the circumstances change. This chapter will deal with the financial and non-financial risks occurring within Propertize and is based on the situation during The financial risks mainly concern the credit, market and liquidity risks. Capital management is discussed in section Credit risk will be dealt with in the following section. Market risk was managed at the level of SNS Bank and SNS REAAL in As of 2014 Propertize will manage the interest rate and exchange rate risks itself. The current business operations do not give rise to share price or credit spread risks. Please refer to chapter 13.3 Market risk in the annual accounts. Liquidity risk will be dealt with in paragraph Wherever the name Propertize is used in the context of the situation prior to 1 January 2014, SNS Property Finance is meant. 22 PROPERTIZE ANNUAL REPORT 2013

23 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Financial risks Developments credit risk Propertize Due to continuing weak economic growth and deteriorating circumstances on the European real estate markets in 2013, the number of defaults and the default volume further increased in The further deterioration of the market, particularly relevant for our portfolios in The Netherlands and Spain, resulted in more vacant properties, lower rents and lower valuations, for our B and C locations in particular. The financing of B and C locations situated in The Netherlands constitutes the majority of Propertize s portfolio. In addition, the definition of default was tightened. Quality property and property finance portfolio The credit quality of Propertize s property finance portfolio further deteriorated in 2013 compared to 2012 which resulted in an increase of the property portfolio (due to repossessions). The continuation of poor market conditions increasingly result in clients having insufficient liquidity to pay interest and redemptions which are not covered by the operational cash flow from the property concerned out of their own reserves. Propertize carried out an in-depth bottom-up and risk-based analysis of approximately 80% of its property and property finance portfolio. The aim of this analysis was to map the current situation with regard to the portfolio so that new exit strategies and exit dates could be determined for all client relationships and a scenario analysis for future developments could be carried out. As a result of the unfavourable developments in the Dutch and international real estate markets, Spain in particular, it has proven necessary to foreclose on the collateral by exercising the rights provided for the benefit of Propertize in a number of cases. Propertize has also obtained the effective control (according to IFRS regulation) over a number of property projects, which are therefore now presented as assets on Propertize s balance sheet. Future developments financial risks For 2014, a cautious economic recovery is expected internationally. This recovery is, however, not yet expected to result in the stabilisation or improvement of the property markets in For this reason, continued impairment losses are expected for Capital management Capital The capitalisation of Propertize strongly improved in 2013 due to the measures taken within the scope of the nationalisation of SNS REAAL and SNS Bank. As of 31 December ,833 million of the original 2.8 billion in the Cushman & Wakefield report (portfolio transfer value) had already been recognised as impairments, leaving an amount of 967 million. This gross amount translates into a net amount of 725 million. Prior to the transfer to the State, SNS Bank had increased Propertize s capital with this amount in the form of a share premium payment, allowing Propertize to cope with future impairments up to an amount of 967 million (gross), if they would materialise in future reporting periods. After the transfer, the State made a share premium payment of 500 million into Propertize s shareholders equity. As a result of these two share premium payments, the negative shareholders equity as at the end of 2012 in the amount of million was converted into positive shareholders equity in the amount of 1,226 million. External funding Because Propertize had not yet raised external financing of its own at the end of 2013, SNS Bank provided for this. The State issued a guarantee for this funding. In the meantime this funding has been replaced by external funding (also under a State guarantee) after the implementation of a funding programme. For more information on this please refer to paragraph 5.2 Funding and credit ratings. PROPERTIZE ANNUAL REPORT

24 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Liquidity In 2013, Propertize maintained an adequate liquidity position. ALM was managed on SNS Bank and SNS REAAL level during The liquidity position ended up at 207 million, in line with year-end 2012 ( 203 million). The liquidity is used both for the day-to-day operations, and with the inflow of cash from regular redemptions and interest on loans, the need for external funding is managed and controlled Non-financial risks The non-financial risks include strategic, integrity and operational risks. The Compliance, Security & Operational Risk Management Department (CS&O) of SNS REAAL is one of the departments that monitors and advises on the management of these non-financial risks. The other departments include Business Continuity Management and Information Security. Management of non-financial risks SNS REAAL had several measures in place in 2013 for its various business segments (and as such including Propertize) aimed at managing the non-financial risks. The most important components were: A clear governance structure, including a clear assignment of duties and responsibilities and escalation routes, supported by a clear risk management structure. For this purpose SNS REAAL implemented a so-called Three lines of defence model. This means that line management is primarily responsible for recognising and managing the risks and decision-taking in this area. CS&O, together with a number of other staff departments at group level, plays an important monitoring role as the second line of defence and has the possibility to escalate, where necessary. The third line of defence is Group Audit, which assesses the structure and functioning of the entire system of management independently of the line organisation. The Group policies formulated by CS&O, including the operational risk framework, in the area of ethical business management for the non-financial risks. CS&O advises on their translation within the business segments if so requested and monitors their compliance. The Training & Awareness Programme to make management and employees conscious of integrity and the management of non-financial risks. It includes information meetings, e-learning, presentations and train-the-trainer workshops. A central point where employees can report various types of incidents, such as fraud, unwanted behaviour and information security issues. It has been set up to ensure that risks are timely reported so that consequential damage can be prevented or limited, and adequate measures can be taken to prevent similar incidents from happening in the future. Staff can also report incidents anonymously as whistle-blowers. Signals of fraud will always be investigated. Fraud investigations are carried out on a risk basis, possibly with specialist external support. Also see the next paragraph. There is a monitoring program that is implemented by CS&O in consultation with Group Audit every year. Using a risk-based analysis it is decided every year which resources will be deployed for relevant topics. The periodic in-control statements by the management of the business segments and the members of the Executive Board of SNS REAAL. In these statements they report on the most important risks and the accompanying management measures, the improvements made compared to the previous period and which improvement actions are being undertaken. The in-control statements identify the most important risks. Integrity risk Propertize wants to take responsibility for its integrity status. This concerns its employees, its clients and any other business relationship. It has been established that in the past (external) staff saw an opportunity for (personal) advantage to the detriment of Propertize. Based on signals of apparent fraud, a limited number of comprehensive investigations have been performed both internally and externally (by forensic parties). The investigations, initiated in 2012 and continued in 2013, have brought to light no other types of fraud yet. As a next step Propertize will identify, analyse and address integrity risks through a comprehensive risk analysis. 24 PROPERTIZE ANNUAL REPORT 2013

25 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT In addition policies and procedures have been tightened and additional controls are implemented to mitigate the risk of fraud from re-occuring. The investigation comprises two components: 1 The signals relating to an alleged conflict of interest and irregularities regarding invoices and statements of expenses of external members of Propertize s staff; 2 A detailed investigation to establish whether any irregularities had occurred in respect of projects and divestments of Propertize. It concerns a risk-based selection of these projects and divestments based on the available signals. As a result of the investigation regarding the first component, a number of irregularities were found to have occurred, resulting in the termination or non-renewal of the working relationship with 18 external members of staff, including one former director and several members of Propertize s management team. In consultation with Propertize, SNS REAAL reported to the law enforcement authorities in 2013 four instances of suspected criminal offences regarding several persons in 2013, including those apparently committed by one of Propertize s former directors. Propertize is co-operating to the best of its ability with the law enforcement authorities and their investigation officers, all this with due observance of the applicable legal framework and codes of conduct / professional codes. The investigation into a presumed conflict of interest, irregularities and malversation was led within SNS REAAL by Group Audit in close cooperation with Compliance and Security. For this purpose SNS REAAL engaged a number of professional external (forensic) parties so that the investigation could be performed as effectively as possible. The irregularities regarding invoices and statements of expenses have caused damages to Propertize. Various recourse actions are currently being contemplated. If these recourse actions end-up being successful, the proceeds will accrue to Propertize. Certain issues may still come to light during the investigation that may affect the valuation of the assets and liabilities of Propertize. As of 31 December 2013, when SNS Property Finance was spun off, the responsibility for the integrity investigation passed to Propertize. Propertize will complete the investigations concerned with utmost care. Administrative Organisation and Internal Controls In 2013 Propertize s management devoted attention to the management of the various risks within the company. The administrative organisation for instance was given a great deal of attention in order to prepare it for the spin-off as of 31 December The qualitative attention paid to the internal control measures came under pressure in 2013 due to the preparations for the spin-off and the substantial increase in the number of questions asked by regulatory bodies and their requirements. The internal control system now consists of separate measures with which the most important risks are managed. Subsidiaries have their own (delegated) responsibility regarding risk management. By appointing directors and supervisors that have a (working) relationship with Propertize, it is assured that the subsidiaries are managed in line with the risk management principles, administrative and internal control principles and norms of Propertize. The main focus regarding risk management at subsidiaries is to be in control, comply with local rules and regulations, act with integrity and prevent fraud New regulations and their implementation CRD IV The Capital Requirements Directive, or CRD IV, was published by the EU on 27 June 2013 and is being introduced in phases with effect from 1 January It is a European directive for the implementation of the Basel III regulations published in 2011 aimed at reinforcing the capital and liquidity of banks and investment firms. CRD IV contains a Directive and a Regulation. The Directive will be incorporated in Dutch legislation around 1 July As the Regulation came immediately into effect, no separate implementation PROPERTIZE ANNUAL REPORT

26 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE process into Dutch law is required. In addition to CRD IV, the European Banking Authority (EBA) is preparing technical standards, most of which will also come immediately into effect. The ultimate impact of CRD IV will thus not become apparent until during the course of As was the case in previous years, during 2013 Propertize was supervised by DNB. In anticipation of its separation of SNS Bank N.V. Propertize engaged in constructive dialogue with its stakeholders, including DNB to develop a sustainable regulatory framework. In view of his unique situation Propertize is in need of a tailor-made framework. Accordingly, Propertize will file an application with DNB to withdraw its banklicense, after adoption of these financial statements. Following Propertize s application DNB is expected to agree to withdraw Propertize s banklicense, whilst simultaneously instructing Propertize to wind-down its remaining activities and operations in accordance with the provisions of section 1:104 paragraph 3 of the Dutch Financial Supervision Act. DNB will impose several conditions and instructions on Propertize, all aimed at ensuring that such winding-down takes place in an integer and controlled way for as long as the wind-down operations shall last, in accordance with (i) applicable laws and regulations, (ii) instructions previously provided by DNB, and (iii) the working arrangements provided by NLFI. The DNB instruction to wind-down Propertize s activities pursuant to aforementioned section 1:104, paragraph 3 of the Dutch Financial Supervision Act, ensures a tailor made DNB supervisory regime regarding Propertize s wind-down activities, enabling Propertize to wind-down its activities as currently contemplated Developments in the risk management organisation The Property Finance activities were separated from SNS REAAL and SNS Bank on 31 December As a result of this, the SNS REAAL Group s role in forming policy and the parameters for risk control is transferred to Propertize with effect from The emphasis will be placed on continuous improvement of the quality and efficiency of the risk management organisation at Propertize, but with no less focus on Propertize s strategy and corporate responsibility. In 2013 Propertize worked on the anticipated separation of the risk management organisation. Changes being made in 2013 will be permanently applied and, where necessary, further defined in the years to come. 5.2 FUNDING AND CREDIT RATINGS The funding strategy is aimed at replacing the SNS Bank funding with public funding, in line with our business strategy (wind-down in ten years), cost effectively and profitably while limiting risks. On 31 December 2013 Propertize was for the largest part funded by SNS Bank, with Dutch State guarantee. The strategy is built on two pillars: The first pillar comprises cash management measures to ensure sufficient and prompt liquidity, but also to avoid surplus liquidity. The second pillar is the diversification in terms of funding instrument and maturity. Propertize has a programme for the issuance of guaranteed (STEP compliant) Euro-Commercial Paper and guaranteed (non-step compliant) Medium Term Notes. The total amount of the funding programme is 4,054,900,000. The State of the Netherlands fully guarantees the funding programme, for which the rules are described in Rules of the Propertize Debt Guarantee Scheme ( Medium Term Notes On 10 February 2014 Propertize started its funding programme, and placed 600 million Medium Term Notes (MTN). This was followed with a second placement of MTNs in the amount of 26 PROPERTIZE ANNUAL REPORT 2013

27 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 750 million on 20 February On 4 March the third placement took place in the amount of 1,000 million. The most recent MTN was placed on 24 March 2014 in the amount of 250 million. The notes cover 67% of funding needs. Table 3: Outstanding MTNs Amount (in millions) Maturity (years) Maturity date April , March February February 2019 Total amount of the MTN s is 2,600 million. The notes are listed on the Amsterdam and Luxemburg stock exchange. Euro Commercial Paper On 6 March 2014 a 500 million Euro Commercial Paper (ECP) was issued. This was followed by a second issue of 500 million ECP on 14 March 2014, and a final third ECP issue of 290 million on 31 March All ECPs have a maturity of less than one year. Within six weeks after the official start of the programme, all placements were successfully concluded. With the proceeds from the funding programme, and regular redemptions, SNS Bank s funding has been fully redeemed in Table 4: Credit ratings Fitch Moody s Long-term AAA (P) Aaa Short-term F1 + (P) Prime-1 Issuer identifier number Programme identifier number (MTN) (ECP) 6 FINANCIAL OUTLINES AND DEVELOPMENT PROPERTIZE Table 5: Results (In millions) Change Result Property finance loans (17) Property projects (24) (14) (71%) Other income 0 (12) 100% Total income (20%) Operating expenses (34%) Impairment expenses 1, % Total expenses 1,131 1,058 7% Result before tax (1,063) (973) (9%) Tax (239) (208) (15%) Net result for the period (823) (765) (8%) Outstanding loan portfolio 4,916 6,615 (26%) Property projects % Total exposure 5,726 7,031 (19%) PROPERTIZE ANNUAL REPORT

28 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE The table above is consistent with internal management reporting and as such different from the IFRS financial statements. Results 2013 compared to 2012 The net loss amounted to 823 million compared to a net loss of 765 million in The higher loss was mainly due to higher impairment charges, driven by further decline of real estate markets especially in The Netherlands for B and C locations. Income Income from the loan portfolio declined by 19 million (- 17%) to 92 million due to the decline of the net outstanding loan portfolio (- 26%), partly compensated by higher interest margins. Income from the real estate portfolio declined by 10 million (- 71 %). Rental income declined from 14 million to 12 million due to increasing vacancy and rent reductions, while operating expenses increased by 8 million to 33 million mainly due to the consolidation of two projects over which Propertize obtained effective control (under IFRS standards) as per 30 September 2013, Babylon (NL) and Űberseequartier (GE). In total, the book value of the real estate portfolio increased from 416 million to 810 million. At initial recognition, the net exposure increased with 300 million as a result of external funding of this project. Űberseequartier is funded by Propertize as well as a third party German bank. Expenses Total operating expenses decreased by 40 million (- 34%) to 77 million due to lower staff expenses resulting from lower external staff and lower other operation expenses, mainly due to lower legal and advisory costs related to the wind-down of the loan portfolio and lower costs related to forensic audits. Impairment charges Impairment charges increased by 112 million (+ 12%) to 1,053 million. The continuing high level of impairments can be attributed to the following causes: Further deterioration of the European property markets, particularly in the Netherlands and Spain, results in further increasing vacancy rates, lower rental income and increasingly lower valuations for B and C locations. Loans for B and C locations in the Netherlands constitute the major part of the portfolio. Pursuant to the regular review process and an in-depth portfolio analysis on the largest part of the portfolio of property projects and property finance loans, more updated appraisals were received in 2013, resulting in lower valuations due to the aforementioned ongoing unfavourable economic developments and declining real estate markets. These lower valuations impacted the level of provisions for impairment. Appraisement continues to be difficult for a large part of the portfolio to test against recent observed comparable market transactions. As a result, the assumptions and estimations made by Propertize in the valuation of loans remain exposed to significant large uncertainties, greater than under normal conditions, which results in broader bandwidths for the valuations. Ongoing difficult market conditions more and more often deprive customers of the means to use their own reserves to meet debt service obligations, which cannot be covered by the property s operating cash flows. The aforementioned developments led to a further increase of the default rate in At year-end 2012, this rate was still 40%; but at year-end 2013 the default rate increased to 62% of the portfolio. The default rate of the Dutch portfolio alone rose from 36% (2012) to 56% at year-end 2013, which was also a result of a tighter application of the default definition. At the time the scenario analyses were prepared, it was concluded for a part of the portfolio that the opportunities that were initially being assessed as a loss- limiting / preventing measure or a potential value-creating strategy were no longer applicable, leading to an adjustment of the exit strategy. This resulted in additional impairments for these items. 28 PROPERTIZE ANNUAL REPORT 2013

29 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The impairment charges consisted mainly of impairments on loans in the amount of 858 million (2012: 718 million). Impairments on property projects amounted to 158 million (2012: 210 million). Impairments on associates and joint ventures amounted to 37 million (2012: 13 million). Portfolio development Total net exposure declined by 1.3 billion to 5.7 billion (- 19%) compared to year-end This decline was due to impairment charges of 1.1 billion and transactions (sales, redemptions) of 0.5 billion. The decline was partly offset by the impact of new consolidated entities ( 0.3 billion). Again, during the year the financial situation of a number of our clients, who already had been in financial difficulty, as a result of which the outstanding loans went into default and provisions were recognised, deteriorated even further. Propertize had to step in and take control of either the related real estate object or the whole entity, in order to optimise the cash flows of the projects in question and secure the collateral related to the loans. Table 6: Breakdown portfolio Propertize by region (In millions) The Netherlands 4,460 5,521 Other Europe 1,181 1,310 North-America Total 5,726 7,031 End of 2013, in relation to the wind-down strategy, management decided to create three buckets in which the loans and property are classified: Healthy, Value retention & creation, and Disposition. Table 7: Buckets loan and property portfolio 2013 (In millions) Healthy Retention Disposition Total Outstanding loan portfolio (gross) 1,325 3,932 1,445 6,702 Loan loss provision ,786 Outstanding loan portfolio (net) 1,325 3, ,916 Property projects Total exposure 1,325 3, ,726 7 HUMAN RESOURCE MANAGEMENT (HRM) Impact and consequences of the nationalisation for our employees Simultaneously with the nationalisation of SNS REAAL, the Dutch Minister of Finance announced that the organisation would wind-down the property and property finance portfolio in the medium term in the most cost-effective and profitable way, and as an independent company. Starting-point was that all employees within SNS REAAL, working at and / or for Propertize for more than 50%, would move to the new organisation. There were also members of staff at SNS REAAL and SNS Bank who worked for Propertize, but for less than 50%; for these positions a job application procedure was conducted at Propertize. These employees did not automatically move to Propertize. Finally, there were also employees who, despite their contract of employment with Propertize, did not work or no longer worked for Propertize, but worked for SNS REAAL for 100% of the time. These employees have entered the service of SNS REAAL. As a result of the spin-off dissynergy effects could not be excluded, as certain activities had to be performed at both SNS REAAL and Propertize. The spin-off meant that Propertize had to set up its own staff departments, so that many vacancies arose. Accordingly, and in order to guarantee (continued) expertise and / or from a social point of view, a job was offered to as many employees of SNS REAAL as was reasonably possible and needed. Eventually 24 FTE of SNS REAAL came over to Propertize at the end of PROPERTIZE ANNUAL REPORT

30 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Integrity Integrity is the life blood of a financial service provider. This is why Propertize has a wide range of procedures in place to ensure that everything is done honestly, properly and in an integer way. Nevertheless, procedures and rules sometimes do not work properly or are not adequately followed. In that case harsh measures shall be taken. In 2012 signals were received that cast doubt on the integrity of a number of external members of staff. After an internal investigation into possible conflicts of interest SNS REAAL reported suspected criminal offences apparently involving one of Propertize s former directors to the law enforcement authorities. Moreover, Propertize forced 18 external members of staff that worked on a temporary basis to either leave the company or they were put on non-active duty. The period that preceded the nationalisation of SNS REAAL and the spin-off was a turbulent one for the employees. Especially the intensive media attention - for Propertize in particular due to the reported criminal offences - did not leave the employees untouched. Still, they managed to stay focussed and Propertize was able to shape its course for the future. New employee benefit program In the wind-up to the spin-off, in 2013 deal of attention was paid to consultations with the trade unions about the company s own collective labour agreement, a Social Plan, employee benefits and the harmonisation of employee benefits for the members of staff of SNS REAAL moving to Propertize. After intensive consultations with the trade unions in the summer, an agreement was reached in autumn which was to all the parties satisfaction. Since 1 January 2014 Propertize has its own employee benefit program (including transitional schemes), which does justice to both the employment (benefits) past of the employees and the future of our organisation. Propertize s Collective Labour Agreement runs from 1 January 2014 up to and including 31 December This long period emphasises the importance attached by all parties to stability in the employment benefits, in line with Propertize s objective. Motivated employees in combination with work satisfaction and good health are important points of attention, along with enabling employee development in the areas of competencies and key values. After a growth phase until 2015, the organisation will be reduced in size in a responsible manner. This means that attention must be paid to the long-term employability of our staff, which is a responsibility that must be fleshed out by employer and employees jointly. Change of location On 1 July 2013 Propertize moved from Leusden to Utrecht. The choice for the present location was partly determined by its excellent accessibility and the acceptability of the travelling distance for our employees. In order to reduce the burden for employees, it was decided that a light version of the New World of Work would be introduced: staff will be provided with the means and the opportunity to work at home and to set up a workplace that complies with the requirements of the Dutch Occupational Health and Safety Act. Propertize s office in Utrecht has been divided into so-called spots for every team and / or department of the organisation. An employee can work within his or her spot, but has no fixed workplace anymore. Employee satisfaction In 2013 Propertize participated in the employee satisfaction survey held by SNS REAAL for the last time. As of 2014 it will conduct a survey independently. In % of Propertize s employees participated in the survey. Despite the turbulent times that were facing us, employees rated their work satisfaction with a score of 6.7, compared to 6.3 in We are pleased that the employee survey shows that people experience Propertize as a safe working environment. 30 PROPERTIZE ANNUAL REPORT 2013

31 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT En route to 2014 As from the last quarter of 2013 Propertize worked hard on the Administrative Organisation / Internal Control System and Desired Organisation. This resulted in a new organisational structure in December 2013, with tightened responsibilities, clear processes and concrete management measures. The Works Council has in the meantime given a positive opinion on it. When adjusting the organisational structure, the deliberate choice was made to create several levels within the existing job matrix. Apart from the fact that this makes duties, responsibilities and powers clearer, it also results in concrete career paths for the employees. Propertize believes that every professional s wish to achieve personal development is of importance for the organisation and Propertize also wants to facilitate this in this way. There is also an Employability Budget available for every employee in order to give it substance. Preparation of our key values after the spin-off Based on our mission we have identified four key values: commitment, integrity, professionalism and respect. Our staff is committed to Propertize and the work they are doing. Their heart lies with Propertize and they make every effort to meet the organisation s target. The work is done adequately and carefully, with due observance to the responsibilities and all the applicable requirements, including rules of conduct. We realise our ambition with a high-quality team of professionals, who have the right know-how, skills and competencies for this purpose in an environment, which is characterised by openness and respect for other people and / or other views. Promoting diversity On 1 January 2013, the Management and Supervision Act (Wet Bestuur en Toezicht) entered into force. The act requires, inter alia, that at least 30% of the Management Board and Supervisory Board members must be female and at least 30% must be male. Propertize does not as yet comply with this requirement regarding balanced representation. Employee participation In 2013 Propertize s Works Council was still part of the employee participation structure of SNS REAAL, including the representation in the Central Works Council of SNS REAAL. Important priorities for employee participation are: internal and external employment in the long term for the largest possible number of employees, continuity in the employment benefits and the Social Plan. As of 1 January 2014 our Works Council (in the same composition) will independently flesh out its role within Propertize together with the Management Board. Table 8: Key staff figures (excluding FTEs of property projects) Key figures Number of FTEs at year-end (fixed labour contract) Temporary contract, in FTEs Male / female ratio 67% - 33% 65% - 35% Full-time / part-time ratio 71% - 29% 69% - 31% Training costs (Euros per FTE) 1,939 1,246 Absenteeism due to illness 3.6% 5.2% Employee survey response 69.4% 36.7% Utrecht, 26 June 2014 Hans Copier, CEO Jack Mondt, CFRO Reinout van Riel, CPO PROPERTIZE ANNUAL REPORT

32 The Supervisory Board greatly appreciates the commitment of the employees of Propertize REPORT OF THE SUPERVISORY BOARD

33 Fr ag m en to fw ev er st ed eh of,n ie uw eg ei n, pa rt of th e re al es ta te ow ne d po rt fo lio of Pr op er tiz e

34 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE REPORT OF THE SUPERVISORY BOARD Propertize (formerly known as SNS Property Finance) was an important factor in the decision to nationalise SNS REAAL on 1 February The continuing losses in its property projects and property finance portfolio resulted in SNS Bank NV s capital position becoming inadequate. Therefore, the Minister of Finance decided to transfer SNS Property Finance s activities to a separate asset management organisation, isolated from SNS REAAL. On 31 December 2013, the shares of SNS Property Finance were transferred to the State, followed by the transfer of the SNS Property Finance shares by the State to Stichting Administratiekantoor beheer Financiële Instellingen (NLFI). On 1 January 2014, SNS Property Finance changed its name to Propertize. The past year was an intensive one for Propertize. Two new supervisors were appointed, as well as two new members of the Management Board. The new Management Board was largely devoted to preparations (in collaboration with SNS REAAL) for the organisation s spin-off as per 31 December 2013 and developing the strategy that must result in the complete wind-down of Propertize s property projects and property finance portfolio in the coming ten years. As part of this, a great deal of attention was also devoted to the further development of the organisation and its structure. In addition, investigations took place in 2013, both by SNS REAAL internally and by external criminal investigation bodies, after signals of possible conflicts of interest and fraud by external members of staff of Propertize. As a result, Propertize forced 18 external members of staff, that worked on a temporary basis, to either leave the company or they were put on non-active duty. These integrity investigations had already started at the end of 2012 and produced a great deal of - negative - (media) attention for Propertize. Propertize s mission is to wind-down its portfolio in a controlled, transparent and professional manner with high ethical standards, within a period of ten years. The Supervisory Board fully endorses this mission, and is of the opinion, together with the Management Board, that a quick and controlled wind-down of the portfolio, with the highest possible proceeds at the lowest possible costs, is in the public interest. The main driver is no longer capital relief, but value retention and creation. The Supervisory Board is of the opinion that the mission, strategic target and ambitions of Propertize (see chapter 4.1 of this annual report) and the wind-down strategy and new organisational structure of Propertize based thereon are a good implementation of the special assignment that Propertize has, with due consideration for the public interest. 8.1 THEMES Important subjects and discussions During 2013 the Supervisory Board exercised supervision over the Management Board and provided it with advice. The Supervisory Board always took a critical attitude and gave advice where necessary, as well as providing support where possible. The most important themes of the Supervisory Board were the preparation and approval of the spin-off of Propertize as per 31 December 2013, the preparation and approval of the winddown strategy and the business plan, the integrity investigations, finding and naming the new Management Board, the action plan for controlled and ethical business management (focusing on, for instance, the reinforcement of the administrative organisation and internal controls), the intended supervision regime for Propertize as a wind-down organisation and the supervision over Propertize s regular business management. 34 PROPERTIZE ANNUAL REPORT 2013

35 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The subjects discussed at the meetings will be described in more detail in paragraph Composition and functioning of the Supervisory Board Composition As Propertize still was part of SNS REAAL in 2013, Propertize s Supervisory Board was composed by members of the Executive Board of SNS REAAL in that year. Due to changes in the Executive Board of SNS REAAL in 2013, the composition of Propertize s Supervisory Board also changed in Thus, Ronald Latenstein stepped down as member and chairman of the Supervisory Board, while Ference Lamp resigned as member of the Supervisory Board as per February As a result of the nationalisation, Gerard van Olphen and Maurice Oostendorp were respectively appointed chairman and member of the Executive Board of SNS REAAL by the State. In that capacity, Gerard van Olphen and Maurice Oostendorp were also appointed chairman and member of Propertize s Supervisory Board respectively as per that date. As per 31 December 2013, in the wind-up to the spin-off of Propertize, Dick Okhuijsen resigned as member of the Supervisory Board on 15 November 2013 and Wim Henk Steenpoorte resigned per 17 December The Supervisory Board is composed of Rob Meuter (chairman), Gerard van Olphen and Maurice Oostendorp. Rob Meuter has been appointed as member of the Supervisory Board on 12 June 2014 and was appointed as chairman on the same date. Gerard van Olphen is still member of the Supervisory Board at the time of publication of this annual report. More information on the composition of the Supervisory Board is given in chapter 9.2 of this annual report. Functioning In 2013 there was no internal or external assessment of the way in which the Supervisory Board functions. The Supervisory Board is expected to become operational in its new composition in At the end of 2014 the Supervisory Board will carry out an assessment of the way it functions Cooperation Cooperation with committees The Supervisory Board has two subcommittees: the Audit & Risk Committee (ARC) and the Nomination Committee (NC). At the committee meetings, subjects can be discussed in-depth, so that the decision-making in the Supervisory Board can be carefully prepared. The cooperation between the Supervisory Board and its committees was adequate in Cooperation with management With the installation of the new Management Board, the cooperation between the Supervisory Board and the Management Board improved. The Supervisory Board supervises and advises the Management Board by taking a critical attitude and providing advice where necessary and by offering support where possible. The Supervisory Board takes responsibility if and when necessary and desirable, for instance by giving its opinion on the wind-down strategy, the business plan and the action plan for controlled and ethical business management. The Supervisory Board is of the opinion that the Management Board as a whole, but also its individual members, showed an extraordinary dedication and commitment in Hans Copier and Reinout van Riel quickly made themselves familiar with Propertize, supported by Jack Mondt with his long-year knowledge and experience. Jack Mondt remained a member of the Management Board after he had voluntarily been subject to integrity investigations. There was good cooperation between the members of the newly composed Management Board. In 2013 the Management Board prepared and drafted the wind-down plan in an energetic and thorough way. PROPERTIZE ANNUAL REPORT

36 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE The same goes for the action plan for controlled and ethical business management, including the preparations for a new Administrative Organisation / Internal Control System. Cooperation with external experts Advice from external experts is sought where necessary, for the proper performance of the supervisory duties of the Supervisory Board. One of the results of this is the regular contact between the Audit & Risk Committee and the external auditor. As Propertize still formed part of SNS REAAL in 2013, Propertize has the same external auditor as SNS REAAL, i.e. KPMG Accountants NV. As a result of the Dutch Act on the Accountant s Profession, Propertize will have to comply with the audit firm rotation requirement. Propertize will prepare itself for this as soon as possible Employees Due to the nationalisation and the various internal and external integrity investigations which took place within Propertize in 2013 (and which, in part, are still under way), Propertize received a great deal of - negative - (media) attention and its employees were under a magnifying glass. The implementation of the measures resulting from the nationalisation and the preparations for the external separation of Propertize as of 31 December 2013 mostly came on top of the regular work of our employees. The Supervisory Board greatly appreciates the commitment of Propertize s employees. In spite of the drastic developments Propertize and its employees went through, the employees continued to give it their all and showed their trust in the management. The Supervisory Board trusts that the employees will continue this commitment in 2014, in realising Propertize s responsibility in light of its mission, strategic target and ambitions, as set out in paragraph 4.1 of this annual report. 8.2 COMPOSITION OF THE MANAGEMENT BOARD On 26 June 2013 Jaap van Dijk stepped down as member of the Management Board. Hans Copier (24 June 2013) and Reinout van Riel (15 July 2013) were appointed chairman (26 June 2013) of the Management Board (CEO) and Chief Restructuring Officer (currently: Chief Portfolio Officer) of Propertize, respectively at the instigation of the State. Jack Mondt remained a member of the Management Board (CFRO). More information on the composition and the assignment of tasks within the Management Board can be found in chapter 3 of this annual report. Brief CVs and positions with other companies and organisations are included in paragraph MEETINGS OF THE SUPERVISORY BOARD Most important subjects In 2013 the Supervisory Board met nine times in total. Informal consultations and information exchanges also took place on a regular basis between the chairman of the Supervisory Board and the CEO of Propertize, as well as between Supervisory Board member Maurice Oostendorp and the CEO and CFRO of Propertize. For the activities of the Audit & Risk Committee and Nomination Committee please refer to paragraph 8.4. In most cases the entire Supervisory Board attended the meetings. In the course of 2013, the Supervisory Board considered the management of the various risks within Propertize. In addition, the monthly business reports were given extensive attention. The most important themes discussed at the Supervisory Board meetings are mentioned in chapter of this annual report. 36 PROPERTIZE ANNUAL REPORT 2013

37 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Apart from this, the subjects dealt with by the Supervisory Board in 2013 included: selecting and appointing new management; Maurice Oostendorp chaired the Credit Committee meetings during 2013; an investigation by the Dutch Central Bank into Propertize s controlled and ethical business management; proposals of the Management Board (i) to provide for possible operational gaps, and (ii) for measures to guarantee staff continuity within Propertize; the 2012 annual results of Propertize and the approval of the 2012 company financial statements; the project Catch-Up Financial statements ; moving Propertize from Leusden to Utrecht; the project Updating the Administrative Organisation / Internal Control System ; the quarterly in-control statements of the Management Board; periodic updates from the external auditor; the decision by the Dutch Central Bank (DNB) to issue a directive; assessing and approving the Risk Appetite Statement (RAS); the intended governance of Propertize as of 2014, including the amendment of Propertize s Articles of Association as per 31 December 2013; the approval of the spin-off of Propertize as of 31 December 2013; the Business Plan (Operational Plan) for ; assessing and approving the intended funding of the wind-down activities from 2014 onwards; assessing and approving the service level agreements, on the basis of which SNS REAAL will provide temporary support for a number of staff department functions for a limited period of time after 31 December 2013; the Declaration of No Objection of DNB with regard to the spin-off of Propertize; assessing and approving the project aimed at a thorough portfolio analysis and removing revision backlogs; the legal procedures in which Propertize is involved. In addition, the Supervisory Board and the Management Board discussed the contacts with the DNB relating to subjects, including the nature, organisation and scope of the integrity investigations, the implementation of the action plan for controlled and ethical business management and the action plan for the intended withdrawal of the banking license and other aspects relating to the supervision regime that applies to Propertize Presence of the Management Board In 2013 all the Supervisory Board meetings were attended by the members of the Management Board Presence of the external auditor In 2013 the Audit & Risk Committee meeting was attended by the external auditor, who was allowed inspection of the minutes of all the Management Board and Supervisory Board meetings. 8.4 MEETINGS OF COMMITTEES The Supervisory Board consisted of two committees in 2013: Audit & Risk Committee Nomination Committee Each committee prepares the decision-making by the Supervisory Board in respect of the duties assigned to it, and reports to the Supervisory Board. PROPERTIZE ANNUAL REPORT

38 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Audit & Risk Committee (ARC) In the second half of 2013 an Audit & Risk Committee (ARC) was installed. As per 31 December 2013 the ARC is comprised of: Maurice Oostendorp (chairman). In addition to the ARC member, the meetings of the ARC were attended by the chairman of the Management Board, the CFRO, the CPO, the head of Internal Audit and the external auditor. The ARC met once in The main subjects discussed and assessed by the ARC in 2013 were the structure and operation of Propertize s financial reporting and the control over it, the financial and audit reports, fiscal issues, the progress of an internal investigation, the internal reports from Internal Audit and the management, the reports and work of the external auditor, the mandate of the external auditor and Internal Audit and the management letter Nomination committee (NC) In July 2013 the NC was set up to prepare the nomination of new members of the Supervisory Board. The composition of the NC is stated in chapter of this annual report. In 2013 the NC considered (i) the selection of candidates for a new independent chairman for the Supervisory Board, (ii) the preparation, in consultation with the State, of a profile of the Supervisory Board (and the individual members) after the spin-off of Propertize as per 1 January 2014, and (iii) the selection of candidates with a banking and legal background for a position as member of Propertize s Supervisory Board. 8.5 ANNUAL FINANCIAL STATEMENTS Both the 2013 annual report and the 2013 annual financial statements were discussed at various meetings of the Audit & Risk Committee and the Supervisory Board, prior to their publication. KPMG, the external auditor, has issued an unqualified auditor s report on the 2013 financial statements. The annual financial statements were submitted to the General Meeting of Shareholders and adopted on 26 June On 27 June 2014 Propertize published its 2013 annual financial statements. 8.6 REMUNERATION REPORT This section deals briefly with the remuneration policy of all employees. The remuneration policy and practices for the Management Board and Supervisory Board are discussed in greater detail in subsequent sections. Remuneration policy Propertize The current remuneration policy is a continuation of the remuneration policy of SNS REAAL. The remuneration policy frameworks have been laid down in the SNS REAAL Group Remuneration Policy. The SNS REAAL Group Remuneration Policy was most recently updated in October In 2014 Propertize will set up its own remuneration policy. The current remuneration policy is based on the following principles: The remuneration policy is compliant with current legislation and regulations. The remuneration policy is characterised by its consideration of all of Propertize s stakeholders: customers, employees, the shareholder and society. The remuneration is transparent and in line with indications that reach Propertize from the outside world. The remuneration matches the risk profile of Propertize and the risk profile of the relevant person holding the position. The policy is in accordance with and contributes to sound and effective risk management and does not encourage taking more risks than acceptable to Propertize. The total remuneration package reflects the requested output of the relevant person holding the position. The purpose of the policy is to attract and retain good employees, taking Propertize s specific position into account. 38 PROPERTIZE ANNUAL REPORT 2013

39 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The policy contributes to the realisation of the strategy and long-term interests of Propertize. There is an appropriate ratio between the fixed and variable remuneration. The policy is as consistent as possible for the Propertize Group, to encourage the exchange and movement of staff to other positions. The revised earnings model forced Propertize to moderate remuneration. Governance The remuneration policy complies with the relevant legal requirements, the Dutch Corporate Governance Code, the Banking Code, Regulation on Sound Remuneration Policies pursuant to the Financial Supervision Act 2011 (Regeling Beheerst Beloningsbeleid Wft 2011) and the Dutch Act on the Limitation of Liability DNB and AFM and the Prohibition on Bonuses for State Supported Companies. The complete remuneration report of SNS REAAL and SNS REAAL Group Remuneration Policy can be found on governance. Propertize intends to review the remuneration policy in Please refer also to section 9.3 Dutch Corporate Governance Codes Remuneration policy Remuneration policy Management Board A new remuneration policy for the Management Board will be drafted in This will be done in close cooperation with and the approval of NLFI. The current remuneration of the Management Board members consists of the following components: the fixed annual income, a pension scheme and a few other fringe benefits. Based on these remuneration components, the remuneration policy will be explained in more detail. Remuneration components The total fixed gross salary of the chairman of the Management Board is 320 thousand per annum. For the other members of the Management Board the total fixed gross salary is 280 thousand (CPO) and 220 thousand (CFRO) per annum. In the event of termination of employment at the initiative of Propertize, the members of the Management Board will receive payments of no more than the total fixed salary of one year. In accordance with the Dutch Act on the Limitation of Liability DNB and AFM and the Prohibition of Bonuses for State Supported Companies the members of the Management Board are not entitled to variable remuneration, as long as Propertize falls within the scope of the Act. The members of the Management Board participate in the same pension scheme as all Propertize employees. Thus the members of the Management Board also pay the same percentage member s contribution to be paid on the pensionable remuneration in accordance with the Propertize Collective Labour Agreement (CLA). Propertize took out three insurance policies for the members of the Management Board: WIA insurance, disability insurance and term life insurance. The corresponding premiums are paid for by Propertize. The other fringe benefits are in line with the conditions that apply to the majority of the employees. In accordance with the 2014 Tax Plan, and based on the Budget Agreement 2013 Tax Measures (Implementation) Act ( Wet uitwerking fiscale maatregelen Begrotingsakkoord 2013 ), Propertize pays a one-off crisis tax levy of 16% in 2014 on the salaries it paid its employees in 2013, in so far as that the salary per employee was more than 150,000. In the table presenting the remuneration of the members of the Management Board, the crisis tax levy is stated as a separate line item. PROPERTIZE ANNUAL REPORT

40 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Remuneration of the Management Board 2013 Table 9 provides an overview of the total remuneration paid to each member of the Management Board. Table 9: Gross remuneration board members Fixed salary Pension Retention Total and other in thousands H. Copier R.D.J. van Riel J.C.J. Mondt J.J. van Dijk Total Crisis tax levy Total Management Board The fixed annual income includes holiday pay, 13th month, health insurance and social security contributions. The fixed salary of Mr. Copier and Mr. van Riel include gross expense allowance. The column Pension and other includes: 1. WIA premium, disability insurance premium and term life insurance premiums (starting from 2013 the amount of disability insurance and term life insurance is based on the grossed up benefit for the employee. Comparative information is restated). 2. The benefit of the private use of a company lease car. The Management Board has three members. In 2013, four individuals were part of the Management Board. Jack Mondt was appointed CFRO as per 22 March 2012, replacing Ernst-Jan Boers. The latter did not receive any remuneration of Propertize. Mr Copier joined the Management Board on 24 June He succeeded Mr. van Dijk as CEO on 26 June 2013, who retired as member of the Management Board at the same date. Mr. van Riel joined the Management Board on 15 July 2013 as CPO. Variable remuneration The members of the Management Board are not entitled to a variable remuneration as long as Propertize is under the scope of the Dutch Act on the Limitation of Liability of the Dutch Central Bank and the Financial Markets Regulator and a Ban on Bonuses for Companies Receiving State Support. No shares or other forms of variable remuneration have been granted to the members of the Management Board. Loans No loans have been provided by Propertize to the members of the Management Board. The mortgage which SNS Bank granted on staff terms to a member of the Management Board will be converted in 2014, in conformity with the harmonisation of employee benefits protocol. There will no longer be an interest rate discount. This will be compensated by a salary increase Remuneration of the Supervisory Board During 2013 the members of the Supervisory Board did not receive any fee or remuneration for their work as members of the Supervisory Board of Propertize. The same applies to the membership of the Audit & Risk Committee and the Nomination Committee of Propertize. 40 PROPERTIZE ANNUAL REPORT 2013

41 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Before the nationalisation, the members of SNS REAAL s Executive Board were also the members of Propertize s Supervisory Board. At that time, the remuneration policy did not foresee in a fee for the membership of Propertize s Supervisory Board. After the nationalisation, members of the Supervisory Board will receive a remuneration with the exception of Supervisory Board members who are also members of SNS REAAL s Executive Board. 8.7 CLOSING WORDS The Supervisory Board explicitly wishes to express its gratitude and appreciation to all employees of Propertize and also to the staff of SNS REAAL involved in realising a stand-alone future for Propertize, in particular for their engagement and commitment. Great demands have been placed on them over the preceding period, both inside and outside the office. This has not always been easy for any of the parties concerned. Despite these developments and the present negative sentiment towards the financial services industry in general, and the situation of Propertize in particular, Propertize s employees continue to dedicate themselves with a great deal of enthusiasm. The Supervisory Board is fully aware that this is not simply to be expected and wishes to express its gratitude for this. In 2013 an exceptional effort was also demanded of Propertize s management. Nevertheless, the cooperation with the Supervisory Board was good. This, too, is something for which the Supervisory Board wishes to express its appreciation. Utrecht, 26 June 2014 On behalf of the Supervisory Board Rob Meuter, Chairman PROPERTIZE ANNUAL REPORT

42 Propertize supports wishes to make a positive contribution to people s confidence in the financial sector CORPORATE GOVERNANCE

43 Fragment of Galvanistraat 14-3, Ede, part of the real estate owned portfolio of Propertize

44 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE CORPORATE GOVERNANCE 9.1 THE MANAGEMENT BOARD Composition and functioning On the date of the publication of the annual report Propertize s Management Board is comprised of: Hans Copier (Chief Executive Officer) Jack Mondt (Chief Financial & Risk Officer) Reinout van Riel (Chief Portfolio Officer) Hans Copier succeeded Jaap van Dijk as per 26 June 2013 as chairman of the Management Board. Reinout van Riel was appointed Chief Restructuring Officer (now: Chief Portfolio Officer) of the Management Board as per 15 July The Management Board is responsible for drawing up and realisation of the corporate strategy of Propertize as stated in paragraph 4.1 of this annual report, the resulting effective wind-down of the property and property finance portfolio, and for the compliance policies, risk management policies, communications, IT policies and staff policies of Propertize. Management Board resolutions are passed by a majority of the votes cast. The formal rules for the functioning of the Management Board are laid down in the Articles of Association of Propertize and the Management Board Regulation. This Regulation has been approved by the Supervisory Board. The members of the Management Board have declared that they agree with the contents of the Regulation and will comply with the rules included therein. The Articles of Association and the Regulation contain an enumeration of resolutions that are subject to the approval of the Supervisory Board and / or the General Meeting of Shareholders Responsibilities, curriculum vitae and other positions The responsibilities of each member of the Management Board are described in Chapter 3. Hans Copier Hans Copier (1957) has been Chief Executive Officer since 26 June Before Hans Copier joined Propertize, he was a member of the European Executive Committee and held the position of Country manager Netherlands at CBRE Global Investors, and additionally that of fund manager of a number of Dutch Real Estate funds. Before that, Hans was a member of the Executive Board of Giesbers Groep and held various positions at FGH Bank, inter alia as Statutory Director. Additional positions: Chairman of the advisory council In-Use of Breeam and member of the experts group of the Dutch Green Building Council (DGBC). Jack Mondt Jack Mondt (1959) has been Chief Financial & Risk Officer since 22 March Before that, Jack Mondt held various Financial Director positions at SNS REAAL and SNS Bank. He was also employed by Fortis and Fortis Bank, Nutsspaarbank s-gravenhage and KPMG Accountants. Additional positions: during 2013 Jack Mondt was a member of the Reporting & Accounting (WGRA) group of the Dutch Bankers Association (Nederlandse Vereniging van Banken) and 44 PROPERTIZE ANNUAL REPORT 2013

45 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT member of the Board of Fonds Onderlinge Hulp, an entity affiliated to SNS REAAL. As a result of the spin-off from SNS REAAL Jack Mondt has resigned these positions. Reinout van Riel Reinout van Riel (1970) has been Chief Portfolio Officer (initially: Chief Restructuring Officer) since 15 July Before joining Propertize, Reinout van Riel held several positions at Royal Bank of Scotland (RBS), including Head of Recoveries & Litigation EMEA. Before that he was employed at RBS and ABN AMRO in various (international) positions. Next to that he has been a board member of RBS Netherlands Pension Fund in 2012 and THE SUPERVISORY BOARD Composition, appointment and functioning On the date of publication of this annual report, the Supervisory Board of Propertize is comprised of: Rob Meuter (chairman) Gerard van Olphen Maurice Oostendorp A member of the Supervisory Board is appointed for a maximum period of four years. Reappointment only takes place after careful consideration and at most twice, each time for a term of maximum four years. Therefore a member of the Supervisory Board can only sit on the Supervisory Board for a maximum of three four-year periods. Members of the Supervisory Board are appointed by the General Meeting of Shareholders, on the recommendation of the Supervisory Board. The Supervisory Board meets at least six times a year, according to a schedule to be prepared annually. The Supervisory Board passes its resolutions by a majority of votes. The Supervisory Board has set up two committees from their midst, which are comprised of the following members as per 31 December 2013: The Audit & Risk Committee, consisting of Maurice Oostendorp (chairman) and Hans Copier, Jack Mondt, Reinout van Riel, the head of Internal Audit and the external auditor. The Nomination Committee, consisting of Gerard van Olphen (chairman) and Maurice Oostendorp. In addition, Hans Copier and a representative of an external executive search agency attend the meetings Responsibilities, curriculum vitae and other positions Rob Meuter Rob Meuter (1947) has occupied several management positions with financial institutions, such as Director-General Wholesale with ABN AMRO NV, Chairman of the Supervisory Board of Friesland Bank and statutory director of Kempen & Co. He has also been the chairman of ABN AMRO s Pension Fund for many years. Rob Meuter holds various posts with other organisations, including that of member of the Supervisory Board of the Royal Dutch Life-Boat Society and member of the Executive Committee of Ubbo Emmius Fonds of Groningen University. Gerard van Olphen Gerard van Olphen (1962) has been chairman of the Executive Board of SNS REAAL since 4 February Before Gerard van Olphen joined SNS REAAL, he held various positions at Achmea, including that of CFRO and member of the Executive Board. Gerard van Olphen was previously employed at SNS REAAL, for instance from as the CFO of SNS REAAL Group and as chairman of the Managing Board of REAAL Verzekeringen. PROPERTIZE ANNUAL REPORT

46 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Gerard Van Olphen was appointed member and chairman of the Supervisory Board in February The position of chairman was transferred to Rob Meuter on 12 June Since then Gerard Olphen has been a member of the Supervisory Board. Maurice Oostendorp Maurice Oostendorp (1956) has been Chief Financial and Risk Officer on the Executive Board of SNS REAAL since 4 February Before Maurice Oostendorp joined SNS REAAL, he held various positions at health insurer Coöperatie VGZ and ABN AMRO, including the position of Chief Financial Officer and member of the Executive Board at Coöperatie VGZ and Director-General of Group Finance at ABN AMRO. Positions with other companies and organisations: member of the Supervisory Board of NWB Bank, member of the Advisory Board of Women in Financial Services (WIFS) and member of the Board of Inspiration of NIVBE-SVV. Maurice Oostendorp was appointed member of the Supervisory Board in February DUTCH CORPORATE GOVERNANCE CODE AND BANKING CODE Dutch Corporate Governance Code The Corporate Governance Code (CGC-code) is applicable to all Dutch listed companies. The content of the CGC-code is available on Although Propertize as a non-listed company is not required to adhere to the Dutch Corporate Governance Code, we continue to attach importance to a transparent governance structure and therefore aim to comply in 2014 with the Dutch Corporate Governance Code. Dutch Banking Code The Dutch Banking Code sets out principles that banks with a banking license issued by DNB should observe in terms of corporate governance, risk management, audit and remuneration. In 2013 Propertize still held a banking license and hence, the Dutch Banking Code applies to Propertize. Propertize believes that the principles of the Banking Code are important. Propertize supports the goals of the Banking Code and wishes to make a positive contribution to people s confidence in the financial sector and the proper functioning of the markets. Our mission, strategy and ambitions, as set out in chapter 4.1 of the annual report, reflect this and it is also shown in the words and actions of Propertize s Management Board. Furthermore, this annual report sets out in different places how Propertize tries to adhere to the principles of the Banking Code. Where necessary, this will be discussed in more detail below. In 2013 Propertize formed part of SNS REAAL. A number of measures aimed at complying with the Banking Code have therefore been implemented at the level of the group. In 2014 Propertize will implement these measures independently within the organisation, so that it will continue to comply with the Banking Code. Propertize complies with the larger part with the Banking Code, however in certain areas additional measures must be taken. This will be part of the establishment and fine tuning of the new organization during Supervisory Board: As a result of the nationalisation on 1 February 2013, Gerard van Olphen and Maurice Oostendorp were appointed by the State as chairman and member of the Executive Board of SNS REAAL and on that account Gerard van Olphen and Maurice Oostendorp were also appointed chairman and member of Propertize s Supervisory Board, respectively, as per the abovementioned date. Because of the nationalisation, no function profiles were prepared for these two appointments as Supervisory Board members. For the future both individual function profiles and a profile for the Board as a whole will be prepared for vacancies within the Management Board and / or Supervisory Board. 46 PROPERTIZE ANNUAL REPORT 2013

47 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The number of members of the Supervisory Board is now in agreement with the relevant provisions in the Articles of Association. In the function profile for the Supervisory Board as a whole, attention is being paid to the need to add expertise in the area of real estate and legal affairs to the Supervisory Board. For this reason, and also within the scope of the Board s independence and diversity, the composition of the Supervisory Board is expected to change in Audit and risk subjects were discussed within the Group Risk Committee and the Audit Committee of SNS REAAL in These Committees are sub-committees of the Supervisory Board of SNS REAAL. These subjects also came up for discussion in the Audit & Risk Committee of Propertize, starting 2 December Within Propertize, the Credit Committee was operational in 2013, providing support to the Management Board and the Supervisory Board in The Credit Committee was chaired by Maurice Oostendorp, in his role as member of the Supervisory Board. In 2014 this committee was succeeded by the Credit and Transaction Committee, which is chaired by Hans Copier (CEO). As 2013 is regarded as a transition year, and the positioning of the Supervisory Board of Propertize was within the governance structure of SNS REAAL, an internal assessment of the functioning of the Supervisory Board, including Permanent Education (PE), did not take place. At the end of 2014 the (new) Supervisory Board will carry out this self-assessment. Management Board: As a result of the nationalisation, Hans Copier was appointed CEO and chairman of the Management Board and Reinout van Riel was appointed Chief Restructuring Officer (now: Chief Portfolio Officer) of Propertize, at the instigation of the State. Jack Mondt continued to serve as CFRO after the nationalisation. The Management Board is composed in such a way that it is well equipped to perform its duties. In light of the complementary roles and the desired functional diversity, the knowledge and experience of the nominated board members were thoroughly scrutinised (both individually and considering the profile of the other member of the Management Board). However, given the special situation of the (aftermath of the) nationalisation, no specific written function profile was prepared during this process. All the Management Board members have a thorough knowledge of the financial services industry in general and the real estate industry in particular. Each Board member is consciously aware of the social environment in which Propertize operates and of the special assignment Propertize has been charged with. During 2013, improvements were initiated regarding documentation of decision making (audit trail). This effort will continue during In 2013, the (former) Management and Supervisory Board members attended the permanent education (PE) as facilitated by SNS REAAL. Given the nationalisation and the assignment to get Propertize in control the focus of the Management Board however was on the organisation and its governance and less on permanent education. In 2014 Propertize will set up its own programme for Permanent Education. Propertize has translated the moral ethical statement into the Propertize code of conduct principles that guide the actions of all employees of the head office of the bank in Utrecht. Every new employee of the head office of the bank is informed of the content of these principles by reference to these principles in the employment contract and is deemed to comply with these principles. In 2013 Propertize launched a process to strengthen and improve management control over its (foreign) joint ventures. Part of this is ethical behavior and actions and code of conduct. The extent to which Propertize can incorporate this in the daily operations depends on the set up of and agreements within each joint venture. Also the strategic plan plays a role: is Propertize expected to take the assets on own book (Real Estate Owned and Propertize fully in control) or will it be fully transferred to the partner (Propertize only lender). PROPERTIZE ANNUAL REPORT

48 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE During 2013, improvements were initiated regarding the documenting of decision making. This will result in better documenting of the balancing of interest of Propertize s stakeholders in decisions taken. Customer Focus To the extent that the theme Putting customers interests first relates to providing advisory services to consumers, this theme cannot be directly applied to Propertize as the company does not provide any advisory services to consumers. However, more in general it can be said that Propertize always does thoroughly weigh the interests of all its stakeholders (including customers), and does opt for solutions which are (also) in the interest of such stakeholders. Further, improvements in this area are deemed necessary. This improvement path has been started as part of Propertize s action plan aimed at optimizing its controlled and integer business management. This action plan will continue until the middle of 2014, but is also aimed at a sustainable improvement of the corporate culture, in order to lift the administrative organisation, the internal control system and overall Compliance to a higher level. The members of the Management Board support the values as set out in the Moral-Ethical Statement signed by them. In 2013 the Management Board initiated a process aimed at translating the standards and values in this Statement into policies and procedures, so that these apply to all employees. This process will be continued and optimised in All new employees will immediately be informed by the Compliance Officer of the Code of Conduct and its underlying principles. The importance of adhering to the Code of Conduct and its standards and values is also emphasized in the labour contracts. As a result of the outcomes in the internal integrity investigations in 2013, Propertize took leave of a number of external members of staff. The integrity investigations are being continued, in order to take responsibility for the integrity status of Propertize, its portfolio and its employees. Risk management In 2013 it was ascertained that Risk Management needed further improvement. The Management Board and the Supervisory Board need better support to monitor material risks at such a time that they can adjust when necessary, or in order to comply with the risk profile. Therefore, further improvement of the systematic risk analysis has to be implemented, as well as an improved monitoring role. Furthermore, the overall awareness of (non-)financial risks has to be increased. This has led to an all-surpassing improvement process, in order to arrive at the desired controlled and ethical business management, in which the Three Lines of Defence model is guiding and is respected within all workflows. Propertize does not have its own Product Approval Process. The reason for this is that Propertize is an organisation that is phasing out its activities and therefore does not offer new products. Audit In 2013 the internal audit function for Propertize was performed by Group Audit of SNS REAAL, in order to ensure a systematic review of the proper functioning of governance structures, risk management and internal control measures. Group Audit has also played an important role in fraud investigations, carried out as a result of internal and external signals. In 2014 an internal audit function will be structured within Propertize, in accordance with the principles of the Banking Code as well as the guidelines of the Institute of Internal Auditors (IIA). Remuneration policy The present remuneration policy was established by SNS REAAL. The SNS REAAL policy complies with the applicable standards. Going forward, starting in 2014, Propertize wishes to conduct a remuneration which reflects Propertize s special position in society. 48 PROPERTIZE ANNUAL REPORT 2013

49 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The present remuneration policy is well thought-out, controlled, sustainable and in accordance with the strategy of Propertize. In 2013 the Supervisory Board did not pay specific attention to the execution of the remuneration policy, since it had been prepared under the supervision of SNS REAAL. The basic principle of the policy is that it must not encourage staff to take risks and that the remuneration must be in proportion to the work performed, with the total remuneration being slightly below the median of that for comparable positions. Propertize does not have any stock option plans. Labour contracts of members of the Management Board comply with the principles of the Banking Code. In accordance with the provisions of the applicable Collective Labour Agreement, all employees whose outcome of their annual Performance and Competence Evaluation was adequate will receive an evaluation bonus of 3% of their annual salary. The Management Board members are excluded they have not received an evaluation bonus. Apart from the above-mentioned evaluation bonus with a maximum of 3 percent, based on the Collective Labour Agreement, there are no variable remuneration systems in place within Propertize. The upper treshold of 100% maximum variable remuneration is therefore complied with. PROPERTIZE ANNUAL REPORT

50 FINANCIAL STATEMENTS

51 Fragment of The Wall, Utrecht, part of the real estate owned portfolio of Propertize

52 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE ANNUAL FINANCIAL STATEMENTS 10 CONSOLIDATED FINANCIAL STATEMENTS 10.1 CONSOLIDATED BALANCE SHEET Consolidated balance sheet Before result appropriation Notes (In millions) Assets Tangible assets Investments in associates and joint ventures Property projects Loans and advances to customers 4 4,916 6,615 8,900 Current tax assets Deferred tax assets Other receivables Other assets Cash and cash equivalents Total assets 6,057 7,675 10,199 Equity and liabilities Share capital and share premium reserve 3, Other reserves (1,068) (303) (60) Retained earnings (823) (765) (243) Equity attributable to the owner of the parent company 9 1,226 (412) 353 Other provisions Deferred tax liabilities Amounts due to banks 11 4,409 7,945 9,709 Current tax liabilities Other liabilities Total equity and liabilities 6,057 7,675 10,199 The references next to the balance sheet items refer to the notes to the consolidated balance sheet starting from paragraph As required by IFRS 1.21, Propertize presents in its first IFRS financial statements three statements of financial position. 52 PROPERTIZE ANNUAL REPORT 2013

53 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 10.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income (In millions) Notes Income Interest income Interest expense (118) (174) Net interest income Rental income Service charge income 5 5 Property projects income Share in result of associates and joint ventures 19 (0) (0) Result on financial instruments 19 (4) (12) Other operating income Total income Expenses Staff costs Depreciation and amortisation of fixed assets 0 0 Service charge expenses 8 7 Fee and commission / management expenses 11 7 Other operating expenses Total operating expenses Impairment charges 22 1, Total expenses 1,193 1,117 Result before tax (1,063) (973) Taxation 23 (239) (208) Net result continued operations (823) (765) Net result discontinued operations - - Net result for the period (823) (765) Net result / Total comprehensive income: attributable to shareholders (823) (765) attributable to minority interests - - Net result / Total comprehensive income for the period (823) (765) The references next to the statement of comprehensive income items refer to the notes to the consolidated statement of comprehensive income starting from paragraph PROPERTIZE ANNUAL REPORT

54 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 10.3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity Issued Share Other Retained Equity share premium reserves earnings attributable capital reserve to the owner of the parent company (In millions) Balance as at 1 January (60) (243) 353 Transfer of net result (243) Transfers (243) Amounts charged directly to equity Net result (765) (765) Total result (765) (765) Transactions with shareholder Balance as at 31 December (303) (765) (412) Transfer of net result (765) Transfers (765) Amounts charged directly to equity Net result (823) (823) Total result (823) (823) Transactions with shareholder (2) 2, ,461 Balance as at 31 December 2013 (1) 0 3,117 (1,068) (823) 1,226 (1) At the end of 2013, the number of authorised share capital (250,000) was reduced to 50,003, the same as the number of issued and paid up shares. The nominal value of the shares, originally 50, was reduced to 1. As the reduction did not involve a return to the shareholders, the value was transferred to the share premium reserve ( 2.5 million). The increase in share premium further comprises the conversion of part of SNS Bank funding as a contribution of share premium by SNS Bank of 1,961.1 million and the capital injection by the Dutch State of 500 million. Minority interests in several property projects have no value as at year-end 2013 and 2012, as their share in the losses and equity of the projects in question results in nil values. For more information, please refer to paragraph Equity and Issued share capital. Propertize BV declared not to distribute dividend for the year PROPERTIZE ANNUAL REPORT 2013

55 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 10.4 CONSOLIDATED CASH FLOW STATEMENT Consolidated cash flow statement (In millions) Cash flow from operating activities Operating profit before taxation (1,063) (973) Adjustments for: Changes in other provisions and deferred taxes Impairment charges / (reversals) 1, Change in operating assets and liabilities: Change in property projects (553) (101) Change in loans and advances to customers 1,343 1,290 Change in other operating activities Net cash flow from operating activities 1,078 1,488 Cash flow from investment activities Sale of investments in associates 2 2 Net cash flow from investment activities 2 2 Cash flow from finance activities Issue of shares or additions to share premium 500 Proceeds (repayments) amounts due to banks (1,575) (1,764) Net cash flow from financing activities (1,075) (1,764) Net increase (decrease) in cash and cash equivalents 4 (273) Cash and cash equivalents as at 1 January Effect of exchange rate differences on cash and cash equivalents - - Cash and cash equivalents as at 31 December Additional disclosure with regard to cash flows from operating activities Interest income received Interest paid Dividends received ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED FINANCIAL STATEMENTS 11.1 ADOPTION OF THE FINANCIAL STATEMENTS The consolidated financial statements of Propertize BV (former name SNS Property Finance BV) for the year ended on 31 December 2013 were authorised for publication by the Management Board following their approval by the Supervisory Board on 26 June The financial statements were submitted to and adopted by the General Meeting of Shareholders on 26 June GENERAL INFORMATION Propertize BV, incorporated and established in the Netherlands, is a private company incorporated under the laws of the Netherlands. Propertize BV s registered office is located at Graadt van Roggenweg 500, 3531 AH Utrecht. The consolidated financial statements of Propertize (referred to as the Company or Propertize ) comprise the accounts of all the companies controlled by Propertize and the interests of Propertize in associated companies and entities. Until 30 December 2013, Propertize BV was a 100% subsidiary of SNS Bank NV. On 31 December 2013 SNS Bank transferred the shares to the Dutch State. The State PROPERTIZE ANNUAL REPORT

56 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE subsequently transferred these shares on the same date to Stichting administratiekantoor beheer financiële instellingen (NL Financial Investments, NLFI). The annual accounts of SNS Bank are available on the company website The objective of the Company is to manage and phase out the Company s portfolio that consists on the one hand of loans in the field of commercial property, and on the other hand of participations in property companies and direct property. The main accounting principles used in the preparation of the consolidated financial statements and the company financial statements are set out in this section GOING CONCERN After the nationalisation of SNS REAAL on 1 February 2013, the Minister of Finance announced that the property and property finance loan portfolio would be separated. The spin-off of the Propertize activities is part of the restructuring plan for SNS REAAL, which the Dutch State submitted to the European Commission (EC) on 19 August The EC approved the transfer on 19 December The Dutch Central Bank (DNB) issued a declaration of no objection for the separation of Propertize on 24 December On 30 December 2013 SNS REAAL announced that the shares in Propertize had been transferred to the Dutch State (effective 31 December 2013). The State subsequently transferred these shares to Stichting administratiekantoor beheer financiële instellingen (NL Financial Investments, NLFI ). Prior to the transfer of the shares, SNS Bank enforced the capital position of Propertize by means of a contribution of share premium. Immediately after the transfer of the shares, the Dutch State strengthened the capital position even further with 500 million. As a result the Company has equity of 1,226 million at year-end 2013 (2012: 412 million negative). Initially, the funding of Propertize largely continued to be provided by SNS Bank. As per 30 December 2013, the Dutch State guarantees the funding by SNS Bank to Propertize. On 10 February 2014 Propertize started its funding programme, to replace the SNS Bank funding with external funding. With four issues of Medium Term Notes (MTN), an amount of 2.6 billion was placed. The issue of Commercial Paper during the months of March and April 2014 in the amount of 1.3 billion has completed the funding programme. With the proceeds from the funding programme, the SNS Bank funding has been redeemed. Please refer to chapter 5.2 Funding and credit ratings in the annual report. The company s main objective is the optimisation of value and cash flows of the total portfolio in the wind-down of this portfolio of both property finance loans and real estate in a period of ten years, as from Based on the before mentioned situation and future developments, the annual accounts are prepared on a going concern basis BASIS OF PREPARATION Propertize prepares its balance sheet items and results in the 2013 financial statements for the first time on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union. IFRS 1 First-time adoption of International Financial Reporting Standards is applied to the preparation of these financial statements. Propertize adopts IFRS later than its former parent SNS Bank. Therefore, in accordance with IFRS 1.D16, Propertize measures its assets and liabilities at the carrying amounts that were included in SNS Bank s consolidated financial statements until the moment of deconsolidation (31 December 2013). 56 PROPERTIZE ANNUAL REPORT 2013

57 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT As Propertize was only required to issue separate financial statements under NL-GAAP, no reconciliation disclosures between the first IFRS consolidated financial statements and the previous NL-GAAP separate financial statements are required Statement of IFRS compliance Propertize prepares the annual accounts in accordance with International Financial Reporting Standards (IFRS), as adopted within the European Union. Pursuant to the option offered under Book 2, Title 9 of the Dutch Civil Code, Propertize prepares its company financial statements (see also paragraph 18.3 Principles for the preparation of the company financial statements for the application of section 2:402 of the Dutch Civil Code) in accordance with the same accounting principles as those used for the consolidated financial statements Changes in published Standards and Interpretations effective in 2013 New or amended standards become effective on the date specified in the relevant IFRS, but may allow early adoption. In 2013, the following standards and interpretations issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee respectively, became mandatory, and are adopted by the EU. Unless stated otherwise, the changes have no material effect on the consolidated financial statements of Propertize. Amendment to IFRS 1 First-time Adoption - Government Loans. Amendment to IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities. IFRS 13 Fair Value Measurement. Amendment to IAS 1 Presentation of Financial Statements - Presentation of Items of Other comprehensive Income. Amendment to IAS 19 Employee Benefits - Post Employment Benefits. Amendments to IAS 12 Income Taxes - Deferred Tax: Recovery of Underlying Assets. Improvements to IFRSs Notes to the main changes: Amendment to IFRS 1 First-time Adoption Government Loans This amendment seeks to amend the requirements for first-time adoption, to mirror the requirements for existing IFRS preparers in relation to the application of amendments made to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, in relation to accounting for government loans. Propertize has no government loans on or before the date of transition to IFRS. Amendment to IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities Taking effect in the current financial year, this standard requires a disclosure on the possibility of offsetting financial instruments. This disclosure requires a breakdown of instruments that are offset in the balance sheet and a disclosure of instruments that are not being offset, but in which the company has the right to offset under specified conditions. Propertize has no netting arrangements or rights to offset under specified conditions (please refer to section ). In addition, the IASB has published Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32). This amendment clarifies the offsetting criteria in IAS 32 and address inconsistencies in their application. Contrary to the IFRS 7 amendment, the IAS 32 amendment is effective for annual periods beginning on or after 1 January PROPERTIZE ANNUAL REPORT

58 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE IFRS 13 Fair Value Measurement The goal of IFRS 13 is to provide a more consistent and simple application of fair value. Taking effect in the current financial year, IFRS 13 is applicable to measurement and disclosure requirements with respect to fair value, irrespective of which asset or liability it concerns. The standard includes a changed definition of fair values as well as additional disclosure requirements. The standard has no impact on which assets and liabilities have to or may be valued at fair value. The modified definition led to the inclusion in fair value of the credit risk of counterparties. Various assets of Propertize are excluded from the scope of IFRS 13. Property projects are excluded, since they are classified as inventory (IAS 2) and measured at the lower of cost and net realisable value, which is excluded from IFRS 13 measurement and disclosure requirements (IFRS 13.6c). This also applies to the financial leases (IAS 17), included in Loans and advances to customers (IFRS 13.6b). The property finance loans (financial instruments) are within the scope of IFRS 13. They are measured at amortised cost. The additional disclosures mainly concern non-financial assets which are measured at amortised cost in the balance sheet and financial assets and liabilities of which a fair value is disclosed. The impact of IFRS 13 for Propertize relates to the (qualitative) disclosure requirements of this standard, in conjunction with the disclosure requirements of IFRS 7. Further disclosures can be found in chapter 14 Financial instruments. IAS 19 Employee Benefits Post Employment Benefits Propertize s pension scheme by the ABP is a multi-employer defined benefit scheme. However, at the moment, the ABP arrangement does not provide a consistent and reliable basis for charging the liability, mutual fund investments and costs of the scheme to individual employers taking part. That is why this pension scheme is treated as a defined contribution scheme for reporting purposes. The financial reporting principles of this defined contribution scheme do not change. The amendment to IAS 19 relates to defined benefit plans. As a result there is no impact on the financial statements of Propertize Interpretations of existing standards or amendments to standards, not yet effective in 2013 The following new standards, amendments to existing standards and interpretations, published prior to 1 January 2014 and effective for accounting periods beginning on or after 1 January 2014, were not early adopted by Propertize. IFRS 9 Financial Instruments. IFRS 10 Consolidated Financial Statements. IFRS 11 Joint Arrangements. IFRS 12 Disclosures of Interests in Other Entities. IAS 27 Separate Financial Statements (revised 2011). IAS 28 Investments in Associates and Joint Ventures (revised 2011). Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Amendment to IAS 32 Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities. Amendment to IAS 36 Impairment of Assets: Recoverable Amount Disclosures for Non- Financial Assets. Amendment to IAS 39 Financial Instruments: Novation of Derivatives and Continuation of Hedge Accounting. Improvements to IFRSs Improvements to IFRSs IFRIC 21 Levies. 58 PROPERTIZE ANNUAL REPORT 2013

59 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Notes to the main changes: IFRS 9 Financial Instruments, classification and measurement The first adoption date has been postponed again by IASB and set at 1 January This new standard is subdivided into three phases. The phases Classification and Measurement and Hedge Accounting have already been published. The phase Classification and Measurement is still subject to changes based on additionally proposed changes. The completed version of IFRS 9 is expected to include the classification and measurement, impairment and hedge accounting requirements (excluding macro hedge accounting), and is expected to be issued in The standard will lead to a complete revision of IAS 39 Financial Instruments. The new standard has not yet been adopted by the EU. Expectations are that the standard will affect the classification and measurement of financial assets and liabilities. Its full impact will not become clear until this IASB project has been completed in full, and published. IFRS 10 Consolidated Financial Statements, IFRS 11 joint arrangements, IFRS 12 Disclosure of Interest in Other Entities, IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investment in Associates and Joint Ventures These IFRS standards have been approved by the EU and will replace the IFRS standards IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities with regards to consolidation rules, and IAS 31 Joint Ventures and SIC 13 Jointly Controlled entities Non-Monetary Contributions by Venturers as of the reporting year Meanwhile, IAS 28 is changed from Investments in Associates into Investment in Associates and Joint Ventures and in combination with these changes IFRS 12 Disclosure of Interest in Other Entities will be in force. IFRS 10 redefines the notion of dominant control because of the diverging interpretation and application of this notion under IAS 27 and the interpretation under SIC12 Consolidation Special Purpose Entities. IFRS 11 determines when and in what way joint arrangements with third parties have to be included in the consolidation of the group. IFRS 11 is, contrary to IAS 31, applicable to all joint arrangements. Under IFRS 11 only the structure of the joint arrangement determines how this is accounted for in the reporting. IFRS 11 differentiates joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint Ventures arise where the investors have rights to the net assets of the arrangement. Joint operations are consolidated proportionately and joint ventures according to the equity method, which is equal to minority interests under IAS 28. IFRS 12 requires clear disclosure of the nature of an interest, the considerations of how to classify the interest and any possible restrictions in the exercise of the dominant control or access to the assets. IAS 27 Separate Financial Statements is limited to the separate financial statements because the regulations for consolidation are included in IFRS 10. IAS 28 is changed so that the equity method is applicable on minority interests as well as joint ventures. Expectations are that the consolidation of Propertize as a result of getting into force of the amendments in these IFRS standards will change. We expect no significant impact on the balance sheet and statement of comprehensive income. If required, the disclosures will be adjusted Accounting principles used in the preparation of the financial statements The accounting principles set out below have been applied consistently to all the periods presented in these consolidated financial statements, as well as to the preparation of the IFRS opening balance on 1 January 2012 in the context of the implementation of IFRS. All group entities have applied the accounting principles consistently. PROPERTIZE ANNUAL REPORT

60 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Accounting principles applied to balance sheet items In preparing the financial statements, the accounting principles amortised cost, net realisable value, historic cost and nominal value are used. Amortised cost is used for Loans and advances to customers and Amounts due to banks. Property projects are valued at the lower of cost or Net Realisable Value (NRV). Non-financial assets and liabilities are generally measured at historical cost. Except for the cash flow information, the financial statements have been prepared on an accrual basis Functional currency and reporting currency The consolidated financial statements have been prepared in millions of euros ( ). The euro is the functional currency of Propertize. All financial data presented is rounded off to the nearest million, unless stated otherwise. Counting is based on unrounded figures. Their sum may differ from the sum of the rounded figures. On the treatment of foreign currencies, please refer to Foreign currencies Main accounting principles, estimates and assumptions The use of estimates and assumptions in the preparation of the financial statements The preparation of the consolidated financial statements requires Propertize to make estimates and assumptions based on complex and subjective opinions and estimates. These estimates have a significant impact on the reported amounts of assets and liabilities and the contingent assets and liabilities at the balance sheet date, and the reported income and expenses for the financial year. Hereby, management judges situations on the basis of available information and financial data which could potentially alter in the future. Although these estimates are made to the best of the management s knowledge, actual results may differ from the estimates and the use of other propositions or data can lead to materially different results. Estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised or in the period of revision and future periods if the revision impacts both the reporting period and future periods. The main accounting principles involving the use of estimates concern the methods for determining the provision for impairment of loans and advances to customers and the determination of the net realisable value of property projects. For detailed information and disclosure of the accounting estimates and assumptions we refer to the next sections and the notes to the financial statements items. Assumptions used in the fair value disclosure of loans and advances to customers are disclosed in section 14.3 Hierarchy in determining the fair value of assets and liabilities Provision for impairment of loans and advances to customers Propertize assesses periodically whether there is objective evidence that a financial asset (property finance loan or financial lease) is impaired. Impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset, but before the balance sheet date, and that loss event (or events) has an impact on the estimated future cash flows of the financial asset. The following circumstances (default indicators), among others, are considered objective evidence that a financial asset is impaired: The borrower / lessee sought or has been placed in bankruptcy or similar protection and this leads to avoidance of or delays in repayment of the financial asset; 60 PROPERTIZE ANNUAL REPORT 2013

61 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The borrower / lessee has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period; The borrower / lessee has entered into a forbearance agreement or similar agreement (restructuring of the credit obligation), in which the conditions of the loan and / or financial lease are changed with respect to principal, interest, fees and terms; The borrower / lessee has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future cash flows of the financial asset; Historic evidence, updated for current events where necessary, provides evidence that assets are impaired although the related events that represent impairment triggers are not yet captured by Propertize s credit risk system. The default indicators are monitored and discussed in the Early Warning Process and the Credit & Transactions Committee (CTC). In addition a risk assessment and exit scenario is drafted of the major part of the finance loan portfolio (both performing and non-performing loans) and brought to the attention of the CTC as input for the quarterly provisioning process. For further information please refer to section 12 Risk management and organisation and 13.2 Credit risk. The provision recognised equals the difference between the book value and the recoverable value. The recoverable value equals the expected future cash flows, including the amounts realised by virtue of guarantees and collateral, discounted at the original effective interest rate of the loan or lease (i.e. the effective interest rate computed at initial recognition). If the amount of the impairment subsequently decreases due to an event occurring after the impairment, the previously recognised impairment loss is reversed in the statement of comprehensive income. When a loan is uncollectible, it is written off against the relevant provision for impairment. Amounts that are subsequently collected are deducted from the addition to the provision for impairment in the statement of comprehensive income Net realisable value of property projects Property projects are valued at the lower of cost or net realisable value (NRV). NRV is the estimated sales price less sales costs, in which the projected revenues and costs (including the estimated sales price at the end of the exit period) are discounted at the weighted average cost of capital (WACC). The estimated sales price at the exit date in the future is determined based on projections of the rental income, price per square meter, construction costs, interest costs and expected market returns on exit date and is based on valuations provided by professional external appraisers ACCOUNTING PRINCIPLES USED FOR CONSOLIDATION Subsidiaries Subsidiaries, i.e. all companies and other entities (including special purpose entities) in respect of which Propertize has the power to determine the financial and operating policies, whether directly or indirectly, are consolidated. This is the case if more than half of the voting rights may be exercised, or if Propertize has control in any other manner. Subsidiaries are fully consolidated from the date on which control is transferred to Propertize. They are de-consolidated from the date control ceases. The financial statements of these group companies are fully consolidated, with Propertize accounting principles being applied. The interests of third parties (if applicable) are separately included in the consolidated balance sheet and statement of comprehensive income. Some foreign entities of Propertize (subsidiaries, joint ventures or affiliated companies) are confronted with a negative equity balance as at year-end. This could potentially pose some regulatory restrictions on the transfer of funds from respective countries to Propertize either in the form of cash dividends or repayment of loans and advances. PROPERTIZE ANNUAL REPORT

62 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Associated companies and joint ventures Investments in associated companies (associates) are entities in which Propertize generally has between 20% and 50% of the voting power, or over which Propertize can exercise significant influence on the operational and financial policies, but has no control. Joint ventures are entities over which Propertize has joint control, which control is laid down in an agreement, and strategic decisions on the financial and operational policies are taken unanimously. The consolidated financial statements include Propertize s share in the total results of associates and joint ventures, from the date that Propertize acquires significant influence to the date that significant influence ceases. The result is accounted for using the equity method, after adjusting the result to comply with Propertize s accounting principles, if needed. Upon recognition, associates and joint ventures are initially accounted for at the cost price (including the transaction costs) and subsequently according to the equity method. The item also includes goodwill paid upon acquisition less accumulated impairment losses, where applicable. Under the equity method, the share of Propertize in the result of associates and joint ventures is recognised in the statement of comprehensive income under share in the result of associates. The share of Propertize in changes in the reserves of associates or joint ventures is recognised directly in shareholders equity (change in share of associates in other comprehensive income). If the book value of the associate falls to zero, no further losses are accounted for, unless Propertize has entered into commitments or made payments on its behalf. If Propertize has also provided loans to the associate or joint venture, and its share in the losses of the associate or joint venture exceeds the book value, a provision is made against these loans. The share in the future profits of the associate or joint venture is a reversal of the provisions for commitments, loans and subsequently may result in a positive book value of the associate or joint venture. Some foreign entities of Propertize (subsidiaries, joint ventures or affiliated companies) are confronted with a negative equity balance as at year-end. This could potentially pose some regulatory restrictions on the transfer of funds from respective countries to Propertize either in the form of cash dividends or repayment of loans and advances Elimination of group transactions Intra-group transactions, intra-group balances and unrealised gains arising from intra-group transactions were eliminated in the preparation of the consolidated financial statements. Unrealised gains on transactions between Propertize and its associates and joint ventures are eliminated to the extent of Propertize s interest in these investments. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment Foreign currencies Upon initial recognition, transactions in foreign currencies are converted into euros at the exchange rate at the transaction date. Monetary balance sheet items denominated in foreign currencies are translated into euros at the official exchange rate applicable on the reporting date. Exchange rate differences from these transactions and from converting monetary balance sheet items expressed in foreign currency are recorded in the statement of comprehensive income under result on financial instruments. Non-monetary items measured at historical cost are measured at the exchange rate applicable on the initial transaction date. 62 PROPERTIZE ANNUAL REPORT 2013

63 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Accounting based on transaction date and settlement date All purchases and sales of financial instruments, which have been settled in accordance with standard market practices, are recognised on the transaction date, in other words, the date on which Propertize commits itself to buy or sell the asset or liability. All other purchases or sales are recorded as forward transactions until they are settled Offsetting of financial instruments Financial assets and liabilities are offset and the net amount is reported on the balance sheet if there is a legally enforceable right to set off the recognised amounts, and there is an intention to settle the items on a net basis, or to settle the asset and the liability simultaneously. If these conditions are not fulfilled, amounts will not be offset Discontinued operations or assets held for sale Assets and liabilities that are part of operations to be discontinued and assets held for sale, of which it is highly probable that, on balance sheet date, the discontinuation or sale is within 12 months, are recognised at the lower of the book value and fair value less expected sales costs. Property projects of Propertize held for sale are measured at the lower of cost or net realisable value. Financial instruments held for sale follow the measurement of the instrument Information by segment Propertize has no distinctive operating segments. The Management Board, as chief operating decision maker for the purpose of allocating resources and assessing Propertize s performance considers the company as a whole. This is also in line with the company s main objective, which is the optimisation of value and cash flows of the total portfolio in the wind-down of the total portfolio of both property projects and property finance loans in a period of eight to ten years, as from SPECIFIC BALANCE SHEET ACCOUNTING PRINCIPLES The accounting principles of the main balance sheet items are described below Tangible assets Propertize has no property in own use. IT equipment and other property and equipment are measured at cost net of accumulated depreciation and, if applicable, accumulated impairment losses. The cost price comprises the expenses directly attributable to the acquisition of the asset and is depreciated on a straight-line basis over the useful life, taking into account any residual value. The estimated useful life can vary from three to ten years. Regular impairment tests are performed on the other property and equipment. If the book value of the tangible asset exceeds the realisable value, it is written down to the realisable value. Repairs and maintenance expenses are recognised under other operating expenses the moment the expense is incurred. Expenses incurred after the acquisition of an asset that increase or extend the future economic benefits of the other tangible fixed assets in relation to their original use are capitalised and then depreciated. PROPERTIZE ANNUAL REPORT

64 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Results on the sale of property and equipment are defined as the balance of the realisable value less transaction costs and the book value. These results are recognised as part of other operating income or other operating expenses depending whether the result is a profit or a loss Loans and advances to customers Loans and advances to customers consist of property finance loans, financial leases and capitalised fees. Property finance loans These are defined as loans and advances to customers with or without mortgage collateral. These loans and advances are measured at amortised cost using the effective interest method. The conditions of loans and advances can change as a result of renegotiations or other reasons (see next section). If the net present value of the cash flows under the new conditions deviates from the net present value of the cash flows under the current terms and conditions, this is considered an objective indication for an impairment test. In certain circumstances Propertize grants borrowers postponement and / or reduction of loan principal and / or interest payments for a temporary period of time to maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. When such postponement and / or reduction of loan principal and / or interest payments is executed it is also referred to as forbearance. In general, forbearance represents an objective impairment trigger (see also section Provision for impairment of loans and advances to customers. If the forbearance results in a substantial modification (a complex restructuring, resulting in one or more new financial instruments with different conditions and cash flows) of the terms of the loan, the original loan is derecognised and a new loan is recognised at its fair value at the modification date. Loans and advances not derecognised but adjusted after renegotiations or otherwise adjusted are measured on the basis of the original effective interest rate before the terms and conditions were revised. Financial lease Propertize has entered (as lessor) into a number of financial lease agreements. These are agreements for which Propertize has transferred almost all of the risks and benefits of the property to the lessee. The book value of the lease receivable is equal to the present value of the lease instalments, calculated on the basis of the implicit interest rate and, if applicable, any guaranteed residual value. This relates to property finance in the Netherlands. The book value of the lease agreement is derecognised if the contractual cash flows from the asset have expired. This will apply at the end of the term when the lessor has no more right to the cash flows of the lessee. A number of financial lease agreements have a purchase option of the property by the lessee. If at the expiration of the lease agreement (the end of the term) the lessee does not use this option, the asset is derecognised, and subsequently recognised as a property project. The value at initial recognition will be the book value of the derecognised lease receivable. Should a new financial lease agreement be issued for the property, either by the same lessee or another lessee, the asset will continue to be recognised as a lease receivable. Impairment As far as the loans and advances are concerned, a provision for impairment is recognised if there are objective indications that Propertize will not be able to collect all the amounts due in accordance with the original contract. See also paragraph Provision for impairment of loans and advances to customers. 64 PROPERTIZE ANNUAL REPORT 2013

65 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Property projects Property projects comprise property for which no specific sales agreement with a third party exists. Property projects comprises completed and not yet completed projects. These properties are stated at the lower of cost price and net realisable value (NRV). Propertize s strategy is to wind-down its organisation in 10 years. As such the policy is to dispose of the property projects within that period in a controlled manner for the highest possible proceeds at the lowest possible costs. NRV is the estimated sales price less sales costs. If the NRV is lower than the book value, an impairment is recognised in the statement of comprehensive income. Reversals of impairments are also recognised in the statement of comprehensive income. See also paragraph Net realisable value of property projects Cash and cash equivalents Cash and cash equivalents include the non-restricted demand deposits with credit institutions with a remaining maturity of less than one month. Restricted demand deposits that Propertize has with other credit institutions are included under Other assets (section ). These receivables are measured at amortised cost using the effective interest method, less any impairment losses Taxes Deferred tax assets and liabilities Deferred tax assets and liabilities are recognised for tax loss carry forwards and for temporary differences between the tax base of assets and liabilities and the book value. This is based on the tax rates applicable as at the balance sheet date and the tax rates that will apply in the period in which the deferred tax assets or tax liabilities are settled. Deferred taxes are measured at nominal value. Deferred tax assets are only recognised if sufficient tax profits are expected to be realised in the near future to compensate these temporary differences. Deferred taxes are recognised for temporary differences between the book value and the value for tax purposes of investments in group companies and associates, unless Propertize can determine the time at which these temporary differences are realised or settled and if it is likely that these differences will not be realised or settled in the near future. The latter are permanent differences. Deferred tax assets are assessed at the balance sheet date and if it is no longer likely that the related tax asset can be realised, the asset is reduced to the recoverable value. Deferred tax liabilities concern tax payable in future periods in connection with taxable temporary differences. The most significant temporary differences relate to the difference between the tax and accounting valuation of the property finance portfolio Current tax assets and liabilities Current tax assets and liabilities relate to payable or recoverable tax on the taxable profit for the period under review, and taxes due from previous periods, if any. Current tax receivables and payables are measured at nominal value according to the tax rate applicable at the reporting date Other receivables Other receivables consist of the invoiced interest due on loans and advances to customers. Upon initial recognition, other receivables are measured at fair value, including transaction costs incurred. Thereafter, they are measured at amortised cost Other assets Other assets consist of accumulated interest on financial instruments measured at amortised cost, other taxes (including VAT, payroll tax), as well as other accruals. PROPERTIZE ANNUAL REPORT

66 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Equity Issued share capital and share premium reserve The share capital comprises the issued and paid-up ordinary shares. The share premium reserve concerns the paid-in surplus capital in addition to the nominal value of the issued ordinary shares. Costs directly attributable to the issue of equity instruments are deducted net of tax from the share issue income. Share dividend Dividend for a financial year, which is payable after the balance sheet date, is disclosed in paragraph 25.1 Provision regarding profit or loss appropriation under Other information. Other reserves Other reserves comprise Propertize s retained profits Amounts due to banks Amounts due to banks comprise the current account and short term (cash) loans with SNS Bank related to the funding of Propertize, and loans extended by foreign banks to entities consolidated by Propertize. Upon initial recognition, amounts due to banks are measured at fair value, including transaction costs incurred. Thereafter, they are measured at amortised cost Provisions Employee benefits Short-term remunerations for employees Short-term remunerations for employees include, inter alia, salaries, short paid leave, profit sharing and bonus schemes. These short-term remunerations are accounted for in the statement of comprehensive income over the period in which the services are rendered. In the event that employees have not made use of their entitlements at the end of the period, a liability is formed for the nominal amount. Other employee commitments The other employee commitments refer mostly to discounts granted for SNS REAAL bank and insurance products to (former) employees after the date of their retirement. The size of the obligation is based on the present value of the discounts offered after the retirement date, taking into account actuarial assumptions about mortality and interest. Furthermore, an obligation has been recognised for reimbursement of medical expenses. To qualify for these benefits, the employment contract of the employee should normally have continued until the retirement age, and it should have lasted for a specified minimum period. A liability is taken for the estimated costs of these benefits during the term of employment using a method that corresponds with that used for defined benefit pension plans. Post-employment commitments Propertize s pension scheme by the ABP is a multi-employer defined benefit scheme. However, at the moment, the ABP arrangement does not provide a consistent and reliable basis for charging the liability, mutual fund investments and costs of the scheme to individual employers taking part. That is why this pension scheme is treated as a defined contribution scheme for reporting purposes. 66 PROPERTIZE ANNUAL REPORT 2013

67 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Other provisions General Provisions are made if there is a legally enforceable or present obligation arising from events in the past, the settlement of which is likely to require an outflow of assets, and a reliable estimate of the size of the obligation can be made. Provisions are measured at the present value of the expected future cash flows. Additions and any subsequent releases are recorded in the statement of comprehensive income. Restructuring provision The restructuring provision is a specific provision that consists of anticipated severance payments and other costs that are directly related to restructuring programmes. These costs are accounted for in the period in which a legally enforceable or actual obligation to make the payment arises. No provision is formed for costs or future operating losses stemming from continuing operations. Propertize recognises severance payments if Propertize has demonstrably committed itself, either through a constructive or legally enforceable obligation, to: The termination of the employment contracts of current employees in accordance with a detailed formal plan without the option of the plan being withdrawn; or The payment of termination benefits as a result of an offer to encourage voluntary redundancy. Benefits that are due after more than twelve months after the balance sheet date are discounted. Legal provisions Propertize recognises a provision for legal proceedings at the balance sheet date for the estimated liability with respect to ongoing legal proceedings. The provision comprises an estimate of the legal costs and payments due during the course of the legal proceedings, to the extent that it is more likely than not that an obligation exists at the balance sheet date, and a reliable estimate can be made of the obligation Other liabilities Other liabilities primarily consist of interest accrued on financial instruments that are stated at amortised cost. This item also includes creditors, other taxes and other accrued liabilities SPECIFIC STATEMENT OF COMPREHENSIVE INCOME ACCOUNTING PRINCIPLES The accounting principles of the main statement of comprehensive income items are described below. General Income and expenditure are allocated to the period to which they relate. Costs are recognised in the cost category to which they relate. A number of services are outsourced to SNS REAAL. The costs are charged by SNS REAAL on the basis of a service level agreement (Transactions Service Agreement / TSA) PROPERTY FINANCE LOAN PORTFOLIO Interest income The interest income comprises interest on the property finance loan portfolio activities attributable to the period. Interest on financial assets is accounted for using the effective interest method based on the actual purchase price. The effective interest method is based on the estimated future cash flows, taking into account the risk of early redemption of the underlying financial instruments and the direct costs and income, such as the transaction costs charged, brokerage fees and discounts or premiums. If the risk of early redemption cannot be reliably determined, Propertize calculates the cash flows over the full contractual term of the financial instruments. PROPERTIZE ANNUAL REPORT

68 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Interest expenses Interest expenses comprise the interest expenses arising from financial liabilities of the funding. Interest on financial liabilities is recognised using the effective interest method PROPERTY PROJECTS The total result related to the Property projects comprises of rental income and service charge income THE SHARE IN RESULT OF ASSOCIATES AND JOINT VENTURES The share of Propertize in the result of associates and joint ventures is here accounted for. If the book value of the associated company or joint venture falls to zero, no further losses are accounted for, unless Propertize has entered into commitments or made payments on its behalf. Where necessary, the accounting principles applied by the associated companies have been adjusted to ensure consistency with the accounting principles applied by Propertize RESULT ON FINANCIAL INSTRUMENTS The result on other financial instruments is recognised under this item. This includes the result on derivatives and the result on the sale of performing loans OTHER OPERATING INCOME This comprises all the income that cannot be accounted for under other headings EXPENSES Expenses are recognised in the statement of comprehensive income on the basis of a direct relationship between the costs incurred and the corresponding economic benefits. If future economic benefits are expected to be derived across different reporting periods, expenses are recognised in the statement of comprehensive income using a systematic method of allocation. Expenses are directly included in the statement of comprehensive income if they are not expected to generate any future economic benefits Staff costs These costs concern all costs that pertain to the personnel. This includes, inter alia, salaries, social security costs and pension costs Depreciation and amortisation of fixed assets This item comprises the depreciation and amortisation of equipment. The specific principles for depreciation and amortisation are explained in more detail in section 11.6 Specific balance sheet accounting principles under the applicable items Service charge expenses & fee and commission / management expenses The service charge expenses consist of service costs (i.e. cleaning, shared (office) space, energy) that are charged to the tenants of the property projects in question. The income received is presented under Service charge income. Fee and commission / management expenses relate to the management fees of the property projects Other operating expenses This includes office, accommodation and other operating costs. It also comprises expenses that happen occasionally, and occur in a single financial year, or arise in a single financial year, and are amortised over multiple financial years Impairment charges This item includes downward revaluations of assets for which the book value exceeds the recoverable value. Intangible assets, property and equipment, associated companies, 68 PROPERTIZE ANNUAL REPORT 2013

69 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT investments, property projects, receivables (loans and advances to customers) and other assets may be subject to impairment. As soon as impairment is identified, it is included in the statement of comprehensive income. The specific principles for impairment are explained in more detail in paragraph under the applicable items CONTINGENT LIABILITIES AND COMMITMENTS Contingent liabilities are liabilities not recognised in the balance sheet because the existence is contingent on one or more uncertain events that may or may not occur in the future not wholly within the control of Propertize. It is not possible to make a reliable estimate of such liabilities. In addition Propertize s customers may have the availability on undrawn credit lines. For more information please refer to section 17.4 Loans and advances to customers. The maximum potential credit risk arising from pledges and guarantees is stated in the notes. In determining the maximum potential credit risk, it is assumed that all the counterparties will no longer live up to their contractual obligations and that all the existing collateral is without value CASH FLOW STATEMENT The cash flow statement is prepared according to the indirect method, and distinguishes cash flows from operational, investment and financing activities. Cash flows in foreign currency are converted at the exchange rate applicable on the transaction date. With regard to cash flow from operations, operating results before taxation are adjusted for gains and losses that did not result in income and payments in the same financial year and for movements in provisions and accrued and deferred items. Investments in (consolidated) subsidiaries and associates are stated under cash flow from investing activities. The cash and cash equivalents available at the acquisition date are deducted from the purchase price. In the context of the cash flow statement, cash and cash equivalents are equal to the balance sheet item cash and cash equivalents. 12 RISK MANAGEMENT AND ORGANISATION 12.1 RISK MANAGEMENT IN TRANSITION Since the 1st of January 2013, Propertize did already have its own Risk Management department, which reported to the organisation s CFRO. Prior to the separation, the risk management activities formed part of the Risk Management of SNS REAAL. During 2013 Risk Management had a functional line with Group Risk Management of SNS REAAL. Propertize s Risk Management activities are focused on managing the credit risks. The daily activities are carried out by the Restructuring & Recovery, Loan Management and Asset Management departments. With the spin-off of Property Finance on 31 December 2013 this functional line has ended. The activities of Propertize s Risk Management also focus on other financial risks, such as the interest rate risk, and managing the non-financial risks RISK MANAGEMENT ORGANISATION Within the Propertize structure, the departments Restructuring & Recovery, Loan Management and Asset Management constitute the first-line risk management organisation. They report to the Chief Portfolio Officer (CPO). The Risk Management department reports to the Chief Financial and Risk Officer (CFRO). The Compliance department reports to the Director Legal & Compliance. These departments form the second-line risk management. PROPERTIZE ANNUAL REPORT

70 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 12.3 FRAMEWORK FOR RISK MANAGEMENT Within the framework of risk management, risks are identified and quantified. In order to make or keep the identified risks controllable, measures are taken. Risk Appetite The risk appetite determines the level and nature of the risks an organisation is prepared to take, taking into account all the stakeholders interests, as part of its strategy. The risk appetite of Propertize is prepared by the Management Board and adopted by the Supervisory Board. After the spin-off, Propertize s Risk Management monitors the daily activities based on the risk appetite and reports to the Management Board and the Supervisory Board. Risk Culture Propertize aims to achieve good risk awareness within its business. By means of communication and training the risk culture is anchored and propagated in the organisation. Risk governance The risk governance framework is based on the governance of Propertize. Corporate governance is guiding. All decisions made involve a risk: this is called risk-taking. The risk must remain within the risk appetite. In order to mitigate the risks, risk control is performed. This is anchored in the (risk) organisation. The framework is aimed at maintaining and managing the risk profile, supporting efficient and effective risk management in all layers of the company and taking risks that are in agreement with the determined risk appetite. Three lines of defence For risk management purposes, three responsibilities are distinguished, based on the Three lines of defence model, which is considered best practice within the financial services industry. Propertize has continued on this principle after the spin-off. The format provides for clear responsibilities and guarantees that risk management is an important subject for the entire organisation: 1 the first line has an executive role and focuses on the primary and execution process of the business activities. Within the scope of the policies and with due observance of the internal procedures and risk limits, the first line aims to realise optimal risk / return ratios. Business plans are drafted in the first line; 2 the second line ( Risk Control ) on the one hand has a managing and accepting role with regard to the transactions proposed by the first line; Risk Control monitors the correct execution of transactions and actions approved in the first line and is responsible for the risk profile in the relation to the risk appetite. On the other hand, the role of Risk Control is to set the framework and to monitor. It prepares the policy frameworks, but leaves their execution and acceptance to the first line. The second line regularly assesses whether the policies are also properly complied with, based on risk reports and its own observations. Risk Control also sets the mandates within which the organisation s risk appetite can become operational. It also defines basic principles and pre-conditions for risk models as well as supporting central decision-taking bodies. The data, models, assumptions, techniques, etc. that are used are periodically validated; 3 the third line has a supervising and assuring role (internal audit). This line supervises the proper functioning of the risk management function, conducts audits and establishes any failures in the risk governance, risk systems and internal controls. It also assesses whether actions have been followed up adequately and have been made compliant. The third line assures the effectiveness of the risk governance (risk-taking up to and including risk control) towards the Management Board, the Supervisory Board and the Audit & Risk Committee. This was continued after the spin-off. The responsibilities within the risk management organisation of SNS REAAL have been clearly determined, with the Group Risk Committee (GRC) of SNS REAAL being the highest body that reports to the Executive Board of SNS REAAL as well as being the primary body setting the 70 PROPERTIZE ANNUAL REPORT 2013

71 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT framework for risk management. With the spin-off of Propertize the Management Board has become responsible, which is now the primary body that establishes the framework for risk management. The Chief Financial Officer of Propertize is also the Chief Risk Officer. He is responsible for formulating and implementing risk policies. The risk principles used for organising risk management, which aim for a consistent risk management approach, have been formulated as follows: One common, group-wide classification of risk types. A pre-determined risk tolerance ( Risk Appetite ) for every recognised risk type. Scenario analyses for stress situations and measures in emergency situations for the most important risks. Testing and validation of the models used for risk management. Designating the risk owners for all recognised risks. Monitoring and assessing the risks, independently of the commercial activities. Risk decision framework The Management Board is responsible for the balance between the commercial interests and the risks taken. The risks must stay within the boundaries of the risk appetite of Propertize. The Management Board makes clear engagements within the scope of the responsibilities and powers to achieve good risk governance. Within the scope of the credit risk decisions the Management Board is supported by the Credit & Transactions Committee (CTC). Since the spin-off the CEO or the CFRO of the Management Board has chaired the CTC. In 2013 the chairman was member of the Executive Board of SNS REAAL. The Supervisory Board is responsible for the approval of the risk appetite and evaluates whether Propertize is operating within the framework of the determined risk appetite. The Supervisory Board assesses the risk governance and the implementation of the strategy by the Management Board RISK CLASSIFICATION During 2013 the risk classification of SNS REAAL was used. The relevant classifications for Propertize are: Financial risks (chapter 13) Credit risk The risk that a borrower and / or counterparty fails to comply with a financial or other contractual obligation. Market risk The risk that equity, results or continuity is threatened by movements in the level and / or volatility of market prices to which the company is exposed. Market risk is split into price risk, interest rate risk, credit spread risk and currency risk. Liquidity risk The risk that there are insufficient liquid assets available in the short term to meet financial obligations, whether under normal circumstances or in time of stress, without this leading to unaccepted costs or losses. Non-financial risks (chapter 15) Integrity risk (compliance risk) The risk that the company s integrity is harmed by actions (or omissions) contrary to its internal (core) values, social standards and values or behavioural laws and regulations or requirements to be observed by the company when providing its financial services or translating these into internal regulations. This may lead to regulatory measures, financial losses or damage to the company s reputation. PROPERTIZE ANNUAL REPORT

72 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Crime risk The risk that the company s integrity is harmed by employees, customers or third parties due to fraud (deceit, misappropriation of property, violation of the law, rules or company policy) or criminal activities directed against the company and / or its customers in their relationship with the company. Operational risk The risk of direct or indirect losses due to inadequate or deficient internal processes and systems, from inadequate or human error, or from external events. In this sense, the operational risk is allencompassing. It can be further broken down into IT risks, outsourcing risks, legal risks, integrity risks and other operational risks. Risks of a mixed nature Strategic risk The risk that strategic objectives are not achieved due to lack of response or inadequate or late response to changes in the environment and the business climate. Strategic risks of a non-financial nature are related to reputation and governance. Strategic risks of a financial nature are related to positioning / acquisitions, capitalisation, concentration of risks and internal models. 13 FINANCIAL RISKS 13.1 INTRODUCTION This chapter discusses the main financial risks arising from financial instruments that occur within Propertize. The financial risks mainly consist of credit risk, market risk (breakdown to interest and exchange rate risk) and liquidity risk CREDIT RISK Credit risk overview The main category of credit risk is related to the loans and advances to customers. To improve the relationship and understanding between the information presented in the credit risk section and the Propertize business, the property projects are also included. Propertize hedges the open foreign currency positions by means of forward exchange rate transaction contracts (FX-contracts) with SNS Bank. The notional amount is 148 million and the fair value is insignificant at year-end Please refer to section for more details. The counterparty credit risk associated with these FX-contracts is considered limited as SNS Bank is a Dutch State owned bank that is well funded Credit risk profile and credit risk management The default loans of Propertize (and loans for which a potential default situation is plausible) are managed by the Restructuring and Recovery (R&R) department. In 2013 the net exposure of Propertize was reduced with 1,305 million, from 7,031 million to 5,726 million. This reduction is the result of regular redemptions in combination with the sale of loans, restructurings and impairments of the portfolio. Property projects increased through foreclosure and the following transfer of loans to property projects. Breakdown portfolio Propertize In millions Commitments 6,667 7,880 Undrawn commitments (35) 48 Outstanding loan portfolio (gross) 6,702 7,832 Provision for impairment 1,786 1,217 Outstanding loan portfolio (net) 4,916 6,615 Property projects Total exposure 5,726 7, PROPERTIZE ANNUAL REPORT 2013

73 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Breakdown portfolio Propertize by region (In millions) The Netherlands 4,460 5,521 Other Europe 1,181 1,310 North-America Total 5,726 7,031 In absolute terms, the major part of the reduction by 1,061 million in 2013 relates to the Netherlands (from 5,521 million to 4,460 million). Net exposure in North America is reduced by 115 million in As a result, the remaining value of this portfolio is only 85 million. As from 1 January 2014, the portfolio is broken down into three buckets: Healthy Value retention & creation ( Retention ) Disposition Buckets loan and property portfolio 2013 (In millions) Healthy Retention Disposition Total Outstanding loan portfolio (gross) 1,325 3,932 1,445 6,702 Provision for impairment ,786 Outstanding loan portfolio (net) 1,325 3, ,916 Property projects Total exposure 1,325 3, ,726 Healthy In this category, Propertize will concentrate on client retention until the end of their term, also to cover its operating costs. These concern loans on which clients pay interest and make repayments and on which no losses on the outstanding balance are expected in the medium-term. Loans can be extended if this will reduce risk and if it is for a period within the ten-year period granted to Propertize. Active portfolio management through account management and regular monitoring will improve the cash flow. Value Retention and Creation It may be possible to retain or create value on the assets in this category, which are mainly Dutch loans and property assets. Obviously, the cash flow and potential value must be higher than the costs of keeping the asset. Active asset management geared to the individual asset is essential for this. Existing loans can be increased or additional investments are possible if individual business cases are favourable. Disposition In some cases, there can be no conclusion other than that there is no scope for value creation and in that case, it is best for Propertize to seek the quickest possible exit so that it can minimise its losses. After all, prolonged retention of such assets will only lead to an increase in losses. Minimising management costs, a systematic dismantling of legal structures and restricting the risk of new claims have greater priority in that case Credit risk Propertize The Propertize activities were spun off as of 31 December The following description is based on the situation in 2013 when the Propertize activities were still part of SNS REAAL and SNS Bank Managing credit risk Propertize The default items of Propertize (and items on which default may arise) are managed by the R&R and Loan Management departments. PROPERTIZE ANNUAL REPORT

74 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE The development of Propertize s credit risk profile is constantly monitored and reported to the Management Board. For this purpose use is made of reports on arrears and overdrafts, periodic revisions, portfolio analyses and external reporting. Revisions Revision is an important part of the portfolio monitoring process, as sound risk management necessitates that client accounts are revised periodically to properly monitor the risk profile. In addition to this regular revision there was a bottom-up and risk-based analysis of a major part of the portfolio (property projects and property finance loans) in the second half of This resulted in three scenarios (bear, base and bull), which made use of forecasts, discounting future cash flows and the most recent internal and external valuations. That analysis was used for the Q credit provision procedure and formed the basis of Propertize s business plan. In addition, the analysis of the individual client accounts was also used as input for revisions. Valuations of collateral Adequate revisions require recent valuations. This is why, within the framework of the periodic revision, the collateral value is assessed in order to determine the value of the loans. Propertize works with a valuation guideline as part of its revision policies. The value of the collateral for the default loans is determined at least once a year, with an external valuation of a major part of the portfolio in the third and fourth quarter. The goal is to test the valuations of default items as at balance sheet date against up-to-date external valuations. Annual valuations are also made of the collateral for loans not in default in excess of 10 million and of project finance loans. The valuation guideline requires collateral with a lower value to be valued at least once every three years. This concerns collateral for loans not in default with a Loan to Value below 90%. The valuation of a property may be performed by an internal expert or by an external appraiser. For loans in default the valuation is nearly always carried out by an external appraiser. Valuations are as much as possible carried out in accordance with the Guidelines of the PTA (Dutch Platform of Appraisers and Accountants) and the RICS (Royal Institution of Chartered Surveyors) valuation standard. For the other loans use is also made of internal appraisers (who have been certified and operate independently). The concept valuations received by Propertize are first audited internally before being finalised. As part of their valuation the appraisers make use of comparable transactions that can be observed in the market as much as possible. Due to the increasing lack of liquidity in the current market, it has become increasingly difficult to test valuations. As a result, the assumptions and estimates made by appraisers when surveying real estate are subject to considerable larger uncertainties than in normal market conditions. Defaults Loans with an increased risk profile are declared in default by the competent approving body as soon as there are indications to this effect. Default indicators used in this respect include the customers payment record (arrears and overdrafts), the Loan to Value (LtV) of the loan, the customer s financial position, the progress in the construction work, the rental or sales rate, the compliance with agreements made, risk status and (other) internal and external signals, and finally the extent to which a loss is expected to manifest itself on the intended exit date. Loans declared in default are, in general, transferred to the Restructuring & Recovery (R&R) department. Provisions Loans are valued on the basis of the base-case scenario, using forecasts, the discounting of future cash flows and the most recent (external) valuation report. If the expected revenues for a loan upon exit are lower than the currently outstanding balance increased by the costs to be incurred in the future, a provision for impairment is recognised or any provision already made is adjusted to the required level. Property projects As a result of the further deteriorating market conditions, Propertize is increasingly forced to foreclose on collateral provided as security to Propertize. As a result Propertize has obtained 74 PROPERTIZE ANNUAL REPORT 2013

75 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT effective control (in accordance with the IFRS regulation) over a number of property projects, which have thus been included in its consolidation scope. Loans with renegotiated terms (forbearance) Propertize considers a forborne asset to be a contract in which the terms and conditions were modified or which was refinanced by Propertize because the counterparty is in, or is considered to face, financial difficulty. The rationale behind forbearance is that Propertize shows leniency towards the counterparty by agreeing on modified terms that would not have been agreed when the client would not have been in financial difficulty. The objective is on the one hand to allow the counterparty to regain its financial health within its means, and by doing so to maintain a sustainable relationship between Propertize and its counterparty, and on the other hand to avoid default, foreclosure or repossession. Please refer to section Loans and advances to customers and Provision for impairment of loans and advances to customers. In December 2012 the European Securities and Markets Authority (ESMA) issued a public statement on the disclosure of forbearance practices in the financial statements of financial institutions prepared under EU-IFRS. A final draft definition on forbearance was provided by ESMA in October Propertize considers itself as acting in the spirit of the recommendations of ESMA. Since Propertize s target is the phase-out of the real estate portfolio and the major part of Propertize s finance portfolio is in default, to present forbearance separately from the other portfolio would not enhance the information in these annual statements; Propertize is using the buckets (see the section before) to manage the portfolio. Impairments The impairments on Propertize s default loans and property projects reflect the changes in the expectations regarding the cash flow profile of the underlying assets. Expected cash flows are driven by items such as rental income, price per square meter, construction costs, interest costs and recent valuation reports provided by professional appraisers. In the estimation of future cash flows, transactions are used which can be observed in the market and which are comparable to the extent possible. Due to the increasing lack of liquidity in the market, it is very difficult for a large part of the portfolio to test against recently observed comparable market transactions. This means that the assumptions and estimates made by Propertize in the valuation of loans are exposed to significantly larger uncertainties greater than under normal market conditions, which results in broader bandwidth for the valuations. Impairments Propertize (In millions) Loans and advances Property projects Associates and joint ventures Total 1, The loans and advances and property projects are discussed in more detail in the following sections. For the impairments on associates and joint ventures please refer to section Credit risk loans and advances to customers The total commitments decreased by 1,213 million from 7,880 million to 6,667 million (-18%). In 2013, the net exposure was reduced by 1,700 million (-26%) to 4,916 million. PROPERTIZE ANNUAL REPORT

76 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Breakdown loan portfolio Propertize (In millions) Commitments 6,667 7,880 Undrawn commitments (35) 48 Outstanding loan portfolio (gross) 6,702 7,832 Provision for impairment 1,786 1,217 Outstanding loan portfolio (net) 4,916 6,615 Impairments loan portfolio Propertize (In millions) The Netherlands Other Europe North-America 39 9 Total The impairments on loans comprise the Netherlands with 72%, Other Europe 23% and 5% North- America. The economy continued to struggle in 2013, putting both tenants and investors under further pressure. The unabated large number of bankruptcies is leading to vacant properties, lower property values and eventually to financial problems for clients, who can no longer service their loans. It would seem that the situation worsened rather than bottomed out in This means that it is necessary to allow for additional vacancy, lower property values and more clients facing liquidity problems in The real estate markets As stated, the Dutch real estate market deteriorated further in 2013 and there are still no clear signs of any recovery, although the residential housing market seems to have bottomed out. The further deterioration, for example of the Spanish and Dutch property markets, is resulting in more vacant properties, especially on the B and C locations which constitute most of the Dutch portfolio (e.g. as a result of the bankruptcy of tenants or the removal of tenants to better locations that have become more affordable as a result of the changed conditions), lower rents and ever-lower valuations. As a whole, the Dutch market for office premises is still suffering from a huge over-supply and an increasing number of vacant properties (currently approx. 16% of the total stock countrywide). These vacancies are concentrated in less up-to-date properties and on less desirable locations. A1 locations on the other hand have been developing slightly more favourably recently, with supply and demand more balanced, and with values that appear to be stable. The impact of the further decline in consumer confidence, which is still at a very low level, combined with the fast-rising use of internet is becoming increasingly evident on the Dutch market for retail premises. In practice, only the A1 locations are still finding favour with tenants and investors, because retailers are still anxious - and still able - to let buyers experience the feel of their brand there. Locations outside the A1 zone are however showing increasingly visible signs of deterioration, such as vacant properties, lower rents, a higher turnover level and a resulting drop in property values. The Dutch market for commercial property has always been less susceptible to trends, as this property is frequently in use by owner-occupiers. Because of its very close links with the recovering global economy, the logistics industry is one of the few sections in our country to still make a reasonably positive contribution to the economy and the value of logistics properties (which are part of the commercial property market) is showing a fairly steady value development. High-quality logistics properties have re-attracted the keen interest of investors recently. 76 PROPERTIZE ANNUAL REPORT 2013

77 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Breakdown loans and advances by underlying assets (In millions) Offices 2,062 2,384 Retail 1,201 1,392 - residential mortgages 1,081 1,272 - residential lease and development Residential 1,553 2,045 Industrial Other Gross outstanding loans secured 6,544 7,702 Unsecured loans Gross outstanding loans 6,702 7,832 Provisions for impairment (1,786) (1,217) Total outstanding (net) 4,916 6,615 In 2013, the reduction of 1,130 million in gross outstanding loans can be broken down into 42% residential property, 9% Retail property, 29% offices, 12% industrial property and 8% other. Loan to value The Loan-to-Value (LtV) of the loan portfolio was 113.5% as at year-end 2013 (2012: 100.9%). As at year-end 2013, the average LtV of the provisioned loans is 161.4% (2012: 169.0%). The LtV of the Dutch portfolio increased from 101.3% at year-end 2012 to 111.4% at the end of The LtV of the other Europe and North-America portfolio increased to 123.6% at year-end 2013, from 99.4% at year-end In case the loans and advances of Propertize are, apart from mortgage collateral, backed by other collateral, this will (partly) mitigate credit risks. The table below shows the gross loans, divided into different LtV buckets. This creates insight into the volumes in which credit risk is completely mitigated by the existing mortgage collateral (LtV 100%) and additionally the volumes where there is a collateral shortfall (LtV> 100%). The classification is based on mortgage collateral; no account has been taken of other guarantees. Breakdown loans and advances by LtV buckets (In millions) Gross outstanding loans 6, % 7, % Provisions loans and advances (1,786) (36%) (1,217) (18%) Total outstanding (net) 4, % 6, % LtV buckets No collateral information available 74 1% 107 1% <= 70% 630 9% % > 70 <= 80% 275 4% 663 8% > 80 <= 90% 623 9% % > 90 <= 100% % % > 100 <= 110% 623 9% 729 9% > 110 <= 120% 590 9% % LtV > 120% (including unsecured loans) 3,096 46% 2,820 36% Total 6, % 7, % Credit quality of loans The table below breaks down the gross outstanding loans of Propertize into non-default, notimpaired default and impaired default. The procedure for declaring loans in default is described in chapter 11 Accounting principles and chapter 12 Risk management. PROPERTIZE ANNUAL REPORT

78 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Defaults Propertize Outstanding Loan to value (In millions) Not in default 2,563 4, % 82.3% Default, not impaired % 96.6% Default, impaired 3,656 2, % 169.0% Total in default 4,139 3, % 151.5% Total 6,702 7, % 100.9% The outstanding balance of the impaired default loans was 3,656 million as at year-end 2013 (2012: 2,649 million). Expressed as a percentage of the total portfolio, the defaults rose from 39.8% to 61.8%. The following table provides information on payments in arrears. The payment record of customers is one of the default indicators used by Propertize. However, payment in arrears does not necessarily automatically result in default. Vice versa it is possible that loans without any arrears are nevertheless declared in default. This can occur mainly in project financing. Arrears in loans and advances Outstanding Loan to value (In millions) Neither past due, nor impaired 2,675 4, % 83.0% Past due but not impaired % 85.8% Impaired 3,656 2, % 169.0% Total 6,702 7, % 100.9% The decline in the neither past due, nor impaired loans of 1,583 million is the result of a shift to impaired loans ( 1,035 million), property projects ( 160 million), redemptions ( 235 million), arrears caught up and an inflow of new loans in arrear ( 32 million) and the realised phase out of these loans ( 121 million). Ageing analysis past due but not impaired loans and advances Outstanding Loan to value (In millions) < 30 days % 82.6% days % 65.8% days % 69.9% > 90 days % 97.8% Total % 85.8% If there are payments in arrears, or is a collateral shortfall (the LtV exceeds 100%) or a combination of both, a thorough analysis may still lead to the decision that a specific provision is not necessary. Reasons for such a decision include: additional security is available, such as cross-collateral connections with loans with a collateral excess, or additional guarantees are available (limited recourse); sufficient cash flow is available, which can be used for interest and redemption to reduce the collateral shortfall; the collateral shortfall or arrears is / are mitigated by means of restructuring. Of the 226 million outstanding which is past due > 90 days, 60% has an LtV < 100%, and one third of this an LtV < 80%. 78 PROPERTIZE ANNUAL REPORT 2013

79 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Provisioned loans and advances Netherlands (In millions) Book value provisioned loans (gross value) 2,668 1,899 Provision (1,324) (867) Book value provisioned loans (net value) 1,344 1,032 Coverage ratio 49.6% 45.7% Fair value collateral provisioned loans 1,639 1,146 Loan to Value provisioned loans 162.8% 165.7% Provisioned loans and advances Other Europe (In millions) Book value provisioned loans (gross value) Provision (407) (253) Book value provisioned loans (net value) Coverage ratio 45.4% 40.9% Fair value collateral provisioned loans Loan to Value provisioned loans 158.2% 164.2% Provisioned loans and advances North-America (In millions) Book value provisioned loans (gross value) Provision (56) (97) Book value provisioned loans (net value) Coverage ratio 61.5% 74.0% Fair value collateral provisioned loans Loan to Value provisioned loans 260.0% 297.7% Provisioned loans and advances all regions (In millions) Book value provisioned loans (gross value) 3,656 2,649 Provision (1,787) (1,217) Book value provisioned loans (net value) 1,869 1,432 Coverage ratio 48.9% 45.9% Fair value collateral provisioned loans 2,241 1,567 Loan to Value provisioned loans 163.1% 169.0% The coverage ratio (= provisions as a percentage of the balance of the provisioned loans) is 48.9%. Compared to 2012, the coverage ratio as at year-end 2013 has increased in all regions, with the exception of North-America Exposures to higher-risk Eurozone countries Propertize regards a eurozone country as higher-risk when the country exhibits higher volatility and economic and political uncertainties than other eurozone members. In line with market practice, Propertize considers the so-called GIIPS countries as high-risk countries. Of the position of 1,181 million in the region Other Europe (see section ) an amount of 163 million relates to exposures in the GIIPS countries Spain and Italy MARKET RISK The risk that equity, results or continuity is threatened by movements in the level and / or volatility of market prices to which the company is exposed. Market risk is split into (property projects) price risk, interest rate risk, credit spread risk and currency risk. For Propertize the price PROPERTIZE ANNUAL REPORT

80 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE risk, interest rate and currency risks are relevant. It does not run any credit spread risks arising of financial instruments Managing market risk During 2013 the market risk has been managed by Risk management of SNS REAAL and SNS Bank. In 2014 Propertize introduced its own market risk reports to monitor and mitigate the market risks. The ALM reports are prepared by the Treasury department. The Propertize reports are discussed in regular Management Board meetings. In this respect market risk is split into two components: interest rate risk and currency risk. Interest rate risks arise due to the fact that there are differences in the interest rate sensitivity of the assets and liabilities in the balance sheet. Currency risk arises as Propertize has exposures in foreign currency as a result of financing and other activities Price risk property projects Due to the unfavourable developments on the Dutch and International real estate markets, it was necessary to recover collateral provided to Propertize under a number of loans. As a result, Propertize gained effective control over a few property projects, which have thus been included in Propertize s consolidation scope. The property on Propertize s balance sheet is valued at the lower of cost or net realisable value. The net realisable value is determined on the basis of the expected present value of the cash flows as estimated under the realistic exit scenario, the same way as the method used in the loan provisioning process. In this respect, estimates are made with regard to costs (completion costs, costs to sell), income (rents, sales proceeds) and the time needed to execute the scenario. The weighted average cost of capital (WACC) is used to discount the cash flows. Impairments property projects Propertize (In millions) The Netherlands Other Europe North-America 3 4 Total The total sum of property projects on the balance sheet of Propertize amounted to 810 million as at 31 December 2013 (year-end 2012: 416 million). Of this sum, 316 million is related to the Netherlands (2012: 107 million), 470 million to Other Europe (2012: 284 million) and 24 million to North America (2012: 25 million). The book value at year-end 2013 is fully based on the lower net realisable value. Accumulated impairments on property projects (In millions) Cost 1, Accumulated impairments (508) (394) Book value (net realisable value) The increase of the gross value is mainly caused by the inflow (in-control and / or recovery of collateral) of property projects in the Netherlands ( 395 million), Germany ( 314 million) and North America ( 38 million). In addition, the gross value has increased due to capitalised project costs. Accumulated impairments have increased mainly due to impairments on projects in the Netherlands ( 41 million), Luxembourg ( 50 million) and Spain ( 43 million). The run-off in Spain of a project led to a decrease with 49 million ( 86 million gross, impairments 37 million). Please refer to section for the policies regarding the (exit) strategies of property projects and loans. 80 PROPERTIZE ANNUAL REPORT 2013

81 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Interest rate risk Term to maturity gap profile 2013 (In million) < 1m 1-3 m 3-12 m 1-5 yr >5 yr Prov Total Loans and advances to customers 5, (1,786) 4,916 Cash and cash equivalents Subtotal 5, (1,786) 5,123 Total assets 5, (1,786) 5,123 Amounts due to banks 4, ,409 Subtotal 4, ,409 Total liabilities 4, ,409 Interest rate sensitivity gap 1, (1,786) 714 Term to maturity gap profile 2012 (In million) < 1m 1-3 m 3-12 m 1-5 yr >5 yr Prov Total Loans and advances to customers 6, (1,217) 6,615 Cash and cash equivalents Subtotal 6, (1,217) 6,615 Total assets 6, (1,217) 6,615 Amounts due to banks 5, ,945 Subtotal 5, ,945 Total liabilities 5, ,945 Interest rate sensitivity gap 549 (225) 297 (451) (80) (1,217) (1,127) Sensitivity test for interest rate risk The interest rate risks can be illustrated by a sensitivity analysis. This analysis calculates the impact of an immediate parallel shift of the yield curve of +100 basis points (bps) on Propertize s financial assets and financial liabilities. Interest rate movements affect reported equity through retained earnings, i.e. increases or decreases in net interest income. The results of the calculations are net of taxation. Compared to 2012, there are no changes in assumptions and methodology in the sensitivity tests. Sensitivity projected net interest income At 31 December (In millions) Interest rate +1% (100 bps) - (12) Interest rate -0.25% (25 bps) - 3 At current low market interest rates, a decrease of the interest rate with 100 basispoints would result in a negative interest. Therefore the decrease is capped at an interest rate of 0%. In 2013, interest rates are 90% floating with respect to property finance loans (2012: 90%), against 100% floating on the funding (2012: 90%). PROPERTIZE ANNUAL REPORT

82 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE An interest increase of 100 basis points will have a limited impact on the gross result. Some clients will not be able to pay this increase as they are currently already in default, and therefore the increase will trigger further impairments. The impact of the interest increase of the loans in default on the gross result is estimated to 17 million (2012: 13 million) Effective interest rates The table below gives an indication of the average effective interest rates throughout the year with respect to financial instruments. Effective interest rates in percentages Assets Loans and advances to customers 3.25% 3.50% Liabilities Amounts due to banks 1.55% 1.97% Currency risk Propertize has assets and liabilities denominated in foreign currency. This exposures Propertize to risk. All currency exposures are measured on a monthly basis, and forward exchange rate transaction contracts (FX-contracts), which are also regarded as derivative transactions, are bought to minimise the open foreign currency exposure. Provisions recognised in relation to assets during the month can result in exposure. Normally, these provisions are known before month-end, as a result of which the exposure can be mitigated. However, part of the information on other balance sheet items in foreign currency become available only after the month-end, causing limited unhedged currency positions. These positions are hedged if needed during the first half of the following month. To reduce the currency exposure, derivatives are bought. This results in a fair value hedge, in which currency results on assets, liabilities and derivatives are recognised in the consolidated statement of comprehensive income. Propertize does not engage in hedge accounting. The currency risk is monitored and reported to the Management Board through a monthly ALM report. Until 30 December 2013 the currency risk was mitigated by means of attracting funding in foreign currency. After the separation of Propertize, the funding could only be closed in euro. To solve this, Propertize changed its methodology, and bought FX-contracts to minimise the currency risk on its foreign currency asset exposures. Exchange rate position 2013 (In millions) Assets Liabilities Balance FX-contracts US dollar Canadian dollar (97) Danish krone (51) Pound Sterling (16) - Total (148) Exchange rate postion 2012 (In millions) Assets Liabilities Balance FX-contracts US Dollar (3) 0 Canadian Dollar Danish Krone Pound Sterling (1) 0 Total (4) 0 The tables present nominal amounts. 82 PROPERTIZE ANNUAL REPORT 2013

83 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Sensitivity exchange rate risk 2013 (In millions) Exposure Local currency +10% Local currency -10% US Dollar 9 1 (1) Canadian Dollar (35) (4) 4 Danish Krone Pound Sterling (15) (2) 2 Total (37) (4) 4 Sensitivity exchange rate risk 2012 (In millions) Exposure Local currency +10% Local currency -10% US Dollar (3) 0 0 Canadian Dollar Danish Krone Pound Sterling Total (3) LIQUIDITY RISK The risk that there are insufficient liquid assets available in the short term to meet financial obligations, whether under normal circumstances or in time of stress, without this leading to unaccepted costs or losses. Managing liquidity risk Liquidity risks are managed on the basis of the net (assets minus liabilities) nominal amounts due per maturity in a gap profile. The following table represents the gap profile at year-end 2013 on the basis of the remaining contractual maturity. Until 2013, Propertize was part of SNS Bank NV, as a result of which liquidity risk management was executed on the level of SNS Bank NV. Liquidity risk 2013 (In millions) < > 5 Total month months months years years Assets Loans and advances to customers ,260 2,333 4,916 Other receivables Other assets Cash and cash equivalents Total assets ,260 2,333 5,189 Shareholders equity ,226 1,226 Liabilities Amounts due to banks 4, ,409 Other liabilities Total equity and liabilities 4, ,226 5,661 Net liquidity gap (3,774) ,906 1,107 (471) PROPERTIZE ANNUAL REPORT

84 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Liquidity risk 2012 (In millions) < > 5 Provision Total month months months years years Assets Loans and advances to customers 1, ,165 3,242 6,615 Other receivables Cash and cash equivalents Total assets 1, ,165 3,242-6,819 Shareholders equity (412) (412) Liabilities Amounts due to banks 7, ,945 Other liabilities Total equity and liabilities 7, (412) - 7,586 Net liquidity gap (6,137) ,654 - (767) In 2014 the funding of SNS Bank was replaced by MTNs and ECPs. For more information on the funding programme, please refer to section 5.2 Funding and credit ratings. The funding aims to mirror the phase-out of the property finance portfolio timelines. A limited number of Propertize s customers still have undrawn credits lines. The amount of undrawn credits from customers is 71 million (2012: 153 million), against an amount of 106 million (2012: 105 million) of endorsed overdrawn. Of the 2013 undrawn credits from customers, an amount of 54 million cannot be drawn without prior approval of Propertize, as the underlying loans are in default. Liquidity risk policy Propertize s liquidity management is based on two pillars. Pillar I is the liquidity buffer, and in pillar II a shortfall of liquidity with a maturity less than one month may not exceed a maximum amount. This maximum amount is reviewed internally and discussed on a monthly basis with the regulatory authorities. The objective of the risk management and policy is to ensure sufficient liquid assets in the short term as well as anticipating liquidity needs in the longer term. 14 FINANCIAL INSTRUMENTS 14.1 FAIR VALUE OF FINANCIAL INSTRUMENTS The following table shows the fair value of the financial assets and liabilities of Propertize. In a number of fair value measurements, estimates are used. Balance sheet items that do not meet the definition of a financial asset or liability are not included. Therefore the total of the fair value presented below does not reflect the underlying value of Propertize and should not be interpreted as such. 84 PROPERTIZE ANNUAL REPORT 2013

85 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Fair value and book value financial assets and liabilities (In millions) Fair value Book value Fair value Book value Assets Loans and advances to customers* 3,116 4,634 3,663 6,294 Other receivables Other assets Cash and cash equivalents Total assets 3,435 4,953 4,083 6,714 Liabilities Amounts due to banks 4,409 4,409 7,945 7,945 Other liabilities Total liabilities 4,560 4,560 8,070 8,070 * The financial lease portfolio (IAS 17) is out of scope of IFRS 13 Fair Value Measurement (IFRS 13.6b) The total value of the Propertize portfolio, consisting of the property projects ( 810 million, valued at the lower of cost or net realisable value), financial lease portfolio ( 282 million,valued ad the net investment in the lease) and the property finance portfolio ( 3,116 million,fair value) amounts to 4,208 million (2012: 4,400 million). Fair value represents the price (exit price) that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the balance sheet date. Fair value is market based, not entity specific. Where observable, the fair values of assets and liabilities are based on quoted prices (for example, if information is available on the reporting date of a sale in a subsequent period). If actively quoted market prices are not available, valuation techniques are used to measure the fair value of these instruments. Parameters used in such valuation techniques may be subjective and various assumptions are used, for instance for the discount rate and the timing and size of expected future cash flows. To the extent possible and available, the valuation techniques make use of observable inputs in relevant markets. Changes in the assumptions can significantly influence the estimated fair values. Moreover, the calculation of the fair value is based on market conditions and assumptions as at 31 December 2013 (or more generally, at a specific point in time) and may not be indicative of future fair values. The main assumptions for each balance sheet category are explained in the section below NOTES TO THE VALUATION OF ASSETS AND LIABILITIES Loans and advances to customers The loans and advances to customers consist of property finance loans and financial leases. The latter is not a financial instrument and not in scope of IFRS 13 Fair value measurement and is therefore excluded from this fair value disclosure. The fair value is based on a valuation model with observable as well as unobservable inputs. The fair value of loans and advances to customers has been established by determining the present value of the expected future cash flows. For more information, please refer to section 14.3 Fair value measurement property finance loan portfolio. Other receivables and other assets Because of the predominantly short-term nature of other receivables (i.e. issued invoices payable within 30 days) and other assets, the book value is considered to be a reasonable approximation of the fair value. Cash and cash equivalents The book value of the liquid assets is considered to be a reasonable approximation of the fair value. PROPERTIZE ANNUAL REPORT

86 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Amounts due to banks Amounts due to banks consist of short term loans and current account balances. The book value of liabilities with a remaining term to maturity of three months or less, liabilities with a State-guarantee and liabilities of which the counterparty is a subsidiary of the Dutch State, are considered to be a reasonable approximation of the fair value. Other liabilities The book value of the other commitments is considered to be a reasonable approximation of the fair value HIERARCHY IN DETERMINING THE FAIR VALUE OF ASSETS AND LIABILITIES No financial instruments other than derivatives measured at fair value are included in the balance sheet. Hierarchy financial instruments 2013 (In millions) Level 1 Level 2 Level 3 Total Fair Book value value Assets Loans and advances to customers 3,116 3,116 4,634 Other receivables Other assets Cash and cash equivalents Liabilities Amounts due to banks 4,409 4,409 4,409 Other liabilities Hierarchy financial instruments 2012 (In millions) Level 1 Level 2 Level 3 Total Fair Book value value Assets Loans and advances to customers 3,663 3,663 6,294 Other receivables Other assets Cash and cash equivalents Liabilities Amounts due to banks 7,945 7,945 7,945 Other liabilities This section starts with a general overview of the distribution of financial instruments among level 1 (the fair value is based on published stock prices in an active market), level 2 (the fair value is based on observable market data) and level 3 (the fair value is not based on observable market data). The distribution is followed by a description of the fair value valuation of the loans and advances to customers (i.e. the property finance loan portfolio). Disclosure level distribution Financial instruments that require disclosure of their fair value, are distributed in three levels. The level is dependent on the parameters used in the fair value measurement, and provides information on the valuation. The different levels are explained in more detail below: 86 PROPERTIZE ANNUAL REPORT 2013

87 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Level 1 Fair value based on published stock prices in an active market For all financial instruments in this valuation category, published stock prices are observable from stock exchanges, brokers or pricing institutions. In addition, these financial instruments are traded on an active market, which allows for the stock prices to accurately reflect current and regularly recurring market transactions between independent parties. Level 2 Fair value based on observable market data This category includes financial instruments for which no stock prices or market quotes are available, and instruments in markets that have been identified as being inactive. The fair value is based on (appraisal) models by external valuation agencies as well as internal independent appraisers, whereby the input variables in the model consist of available and observable market information. If certain inputs in the model are unobservable, but all significant inputs are observable, the instrument is still classified in this category, provided that the impact of those unobservable inputs on the overall valuation is insignificant. Level 3 Fair value not based on observable market data This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model) for which more than an insignificant part of the inputs in terms of the overall valuation are not observable in the market (i.e. a significant portion of the instrument s fair value is driven by unobservable inputs). Unobservable in this context means that there is little or no current market data available from which the price at which an arm s length transaction would be likely to occur can be derived. Fair value measurement property finance loan portfolio The basis of the fair value measurement of the property finance loan portfolio is the business plan of Propertize. The business plan is based on the total portfolio of loans, financial leases and property projects. As the financial leases and property projects are not in scope of the fair value measurement, this section discusses the property finance loan portfolio. The business plan was set up in Basis of the business plan was an analysis of the largest part of the property portfolio. Inputs in the assessment were: Regular appraisals by independent qualified valuers of the underlying property (collateral) of the property finance loan. The overall performance of the finance loan, i.e. (non)-default and the counterparty in general. The market for (re)financing property finance loans. The main input variables in relation to the underlying property assessment concern market transactions, market interest rates, recent interest risk surcharges by type of asset, vacancy percentages, rent per square meter, the condition and location of the asset, restrictions on the sale or use of the asset and possible alternative use of the asset. The projected development of the property finance loan portfolio for the period is for a major part based on a bottom-up analysis derived from the outcomes of the aforementioned project, and the remainder is based on a top-down approach. This implies that the business plan is for a large part derived from the characteristics and dynamics of the underlying individual client relation compositions and the related assets, which is in line with the unit of account requirements of IFRS 13 and IAS 39. The property finance portfolio was subsequently segmented into three buckets: Healthy, Value retention & creation, and Disposition. The property finance loans have been classified into either one of these buckets. The three buckets were then used as input in Propertize s business plan. Management considers the business plan fair and reasonable. An average market participant would use the same approach and consider a comparable set of projections for the valuation of the property finance loan portfolio. The Ministry of Finance approved the business plan. PROPERTIZE ANNUAL REPORT

88 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE This business plan has the following main characteristics: A ten-year horizon, Three buckets: - Healthy: normal portfolio with positive outlook. - Value retention & creation: viable portfolio with moderate to positive outlook. - Disposition: non-viable portfolio with a negative outlook. Per bucket, three cases were defined, leading to a bear, base and bull case. The mid-case between bear and base case was used for the valuation of the portfolio. The valuation technique can be classified as income approach. The model used in the business plan is a dividend discount model, or flow to equity approach. Key value drivers and assumptions: Loan development, future impairments and interest income derived from the mid-case business plan. Cost of debt of 4%. Cost of equity of 13.5%. Target funding ratio (capital structure) to finance the portfolio of 70% debt and 30% equity. Cost ratio of 75% of Propertize s operational expenses derived from the business plan. An effective tax rate of 25% Cost of debt The pre-tax cost of debt consists of three components: A risk-free rate A spread, which relates to the risk profile (derived from a credit rating) A country risk premium The cost of debt was derived from the IRS-yield (5-years) plus a spread of 300 basispoints (average of financial institutions with a BBB rating and private equity funds with subordinated debt). The five years relate to the estimated duration of the portfolio. The Country Risk Premium is assumed to be nil given the large presence of the property finance loan portfolio s underlying properties in the Netherlands. The cost of debt assumption was tested against the normalised 5-year German Sovereign strips (0.9%) plus a spread based on a sample of 55 listed European Real Estate Companies (3.1%). The result is the same: 4%. Cost of equity The rate of return on equity capital is estimated using the Capital Asset Pricing Model. The rate of return is the risk-free rate plus a market risk premium, multiplied by the Beta (ß-multiplier) for the stock. As peer group financial services institutions were used, and consideration was given to the funding characteristics of European Real Estate companies. In addition, several research studies demonstrate that, on average, smaller companies (like Propertize) have higher rates of return than larger companies. This resulted in an additional stock premium. Funding (leverage) ratio Target Tier 1 ratio s (regulatory requirement) as well as actual capital ratios of the comparable companies the peer group have increased considerably. A further increase is expected. Recent transactions based on public information show a bandwidth of 60-70% funding by third parties. Another study into LBO s 2014 show a split of 30% equity, 50% senior debt and 20% subordinated debt, which supports the leverage ratio chosen in the valuation. Cost ratio Propertize has operational expenses which primarily relate to personnel, general, and administrative expenses. The 75% allocation of costs is based on the proportional allocation of 88 PROPERTIZE ANNUAL REPORT 2013

89 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT the number of employees towards the property finance loan portfolio, the financial lease portfolio and the property projects portfolio. The projected wind-down of the property finance portfolio requires special attention, which is considered in Propertize s forecast of operational expenses. An average market participant would most likely make the same considerations, and would therefore be hesitant to include cost synergies. Results and sensitivity of the fair value measurement The fair value of the property finance loan portfolio at 31 December 2013 is 3,116 million (2012: 3,663 million). The fair value is positively impacted over time by (i) the assumed return on the fair value of the property finance loan portfolio, and negatively impacted by (ii) the actual return on debt, (iii) the repayment of debt, and (iv) the combination of the realised return on equity plus the repayment of equity. The 2012 fair value of 3,663 million reflects all information available until June 2014 in relation to the situation that existed on 31 December The key drivers in the valuation model used to measure the fair value in 2012 were recalibrated, and the cash flows were calculated with the same bottom-up analyses used in the 2013 fair value measurement. Sensitivity analysis key drivers Variations in the assumptions of Management in relation to the key drivers influence the resulting fair value. A sensitivity analysis has been conducted on the cost of debt, cost of equity, leverage ratio and return assumptions on both cost of debt and equity. In the tables, the amount of 3,116 million represents the fair value measurement Sensitivity analysis 2013 key drivers Cost of Debt 3.0% 4.0% 5.0% Equity Value Debt Value 2,241 2,181 2,124 Fair Value property finance portfolio 3,201 3,116 3,034 Cost of Equity 12.0% 13.0% 13.5% 14.0% 15.0% Equity Value Debt Value 2,246 2,202 2,181 2,160 2,119 Fair Value property finance portfolio 3,209 3,146 3,116 3,086 3,027 Leverage 25.0% 30.0% 35.0% Equity Value ,064 Debt Value 2,396 2,181 1,976 Fair Value property finance portfolio 3,195 3,116 3,040 Return Assumptions Cost of Debt (Pre-Tax) 3.6% 3.8% 4.0% 4.2% 4.4% Cost of Debt (Post-Tax) 2.7% 2.9% 3.0% 3.2% 3.3% Cost of Equity (Post-Tax) 12.2% 12.8% 13.5% 14.2% 14.9% WACC 5.5% 5.8% 6.2% 6.5% 6.8% Equity Value Debt Value 2,264 2,222 2,181 2,141 2,103 Fair Value property finance portfolio 3,235 3,174 3,116 3,059 3,004 PROPERTIZE ANNUAL REPORT

90 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Overall conclusion on the sensitivity analysis shows that the variation in key drivers results in a range of billion. The fair value calculations, results and assumptions have been reviewed by an independent external consulting firm. 15 NON-FINANCIAL RISK MANAGEMENT As described in the risk classification, Propertize recognises both financial and non-financial risks. Non-financial risks include strategic, integrity and operational risks. The Compliance department is one of the departments monitoring and advising on the management of these non-financial risks. During 2013, the management of non-financial risks was executed according to the three lines of defense. Please refer to section MANAGEMENT OF NON-FINANCIAL RISKS Propertize has taken several measures to manage non-financial risks. The main components are the following: A clear governance structure, including a clear assignment of duties and responsibilities and escalation routes, supported by a clear risk management structure. For this purpose SNS REAAL implemented a so-called Three lines of defence model. In 2014, we continue to use our own three lines of defence model.. This means that line management is primarily responsible for recognising and managing the risks and decision-taking in this area. CS&O, together with a number of other staff departments at group level, plays an important monitoring role as the second line of defence and has the possibility to escalate, where necessary. The third line of defence is Group Audit, which assesses the structure and functioning of the entire system of management independently of the line organisation. The Group policies formulated by CS&O, including the operational risk framework, in the area of ethical business management for the non-financial risks. CS&O advises on their translation within the business segments if so requested and monitors their compliance. The Training & Awareness Programme to make management and employees conscious of integrity and the management of non-financial risks. It includes information meetings, e-learning, presentations and train-the-trainer workshops. A central point where employees can report various types of incidents, such as fraud, unwanted behaviour and information security issues. It has been set up to ensure that risks are timely reported so that consequential damage can be prevented or limited and adequate measures can be taken to prevent similar incidents from happening in the future. Staff can also report incidents anonymously as whistle-blowers. Signals of fraud will always be investigated. Fraud investigations are carried out on a risk basis, possibly with specialist external support. Please refer to section Claims and legal cases, subsection Irregularities. There is a monitoring program that is implemented by CS&O in consultation with Group Audit every year. Using a risk-based analysis it is decided every year which resources will be deployed for relevant topics. The periodic in-control statements by the management of the business segments and the members of the Executive Board of SNS REAAL. In these statements they report on the most important risks and the accompanying management measures, the improvements made compared to the previous period and which improvement actions are being undertaken. The in-control statements identify the most important risks. 90 PROPERTIZE ANNUAL REPORT 2013

91 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 16 CAPITAL MANAGEMENT 16.1 GOING CONCERN CAPITAL MANAGEMENT Propertize has prepared a strategic plan for the period , i.e. the period during which Propertize plans to phase-out the property finance loan portfolio and its real estate. This strategic plan is translated into an operational plan with a 3-year horizon. This plan is reviewed annually. Based on the operational plan, Propertize prepares a capitalisation and funding plan with the same horizon, in which the expected development of the capital and funding available is compared to the capital and funding requirements ensuing from the operational plans. In addition to the capitalisation and funding plan, a 12-month rolling forecast of capitalisation developments is made, which is discussed by the Management Board. This forecast is used to control the funding needed, the roll-over of the 3, 6 and 9-month s ECPs, and in the longer term the MTNs. This quantitative assessment of the capital and funding position is confronted with the applicable internal standards, supervisory restrictions and rating agencies requirements with regard to the composition of capital and funding. The strategic, capitalisation and funding plan translate in a number of objectives, summarised in the next section OBJECTIVES Propertize s capitalisation focuses on the optimisation of the capital structure in such a manner that it contributes to the realisation of Propertize s strategy. Propertize s capital management objectives are: The Dutch State has strengthened the capital of Propertize by means of 500 million at the end of The strategic objective of Propertize is to maintain this capital, i.e. the capital position of Propertize will not end up below 500 million. Propertize has prepared a base and bear case of its portfolio. The objective is that in a bear case situation Propertize will have ample capital. A liquidity buffer of 100 million as a minimum. A liquidity shortfall of maximum 200 million according to the 12-months rolling forecast of amounts due within one month. The objectives have been discussed with the regulatory bodies. ILAAP In 2013, the liquidity adequacy of Propertize was assessed on SNS Bank level, as Propertize was part of SNS Bank. With the ILAAP (Internal Liquidity Adequacy Assessment Process) the available amount of liquidity is determined, and assessed whether it is sufficient compared to the amount of liquidity deemed necessary. As from 2014, Propertize is exempt from ILAAP assessment and reporting CAPITAL AND SOLVENCY POSITION Solvency position In the table below, which is also disclosed in chapter 26 Pillar III report, an overview of the capital requirements and the Risk Weighted Assets (RWA) as of 31 December 2013 divided by the different risk types is presented. The RWA for credit risk comprises 97.6% of the capital requirements in Propertize. PROPERTIZE ANNUAL REPORT

92 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Capital requirements and risk weighted assets Risk weight Exposure RWA Capital value Requirement in millions Credit risk Standardised exposures classes: - Institutions 20% Secured by real estate 0% % % % 4,563 4, % Past due items 50% % Other items 0% % ,137 6, Market risk* - Standardised N/A N/A N/A Operational risk - Standardised Total 6,137 6, * Propertize has no trading book The net loss of 2013 was more than compensated by the capital injections of both SNS Bank and the Dutch State. The Tier-1 ratio ended up at 8.01% at year-end 2013, with a Tier-1 capital of 501 million, and risk weighted assets of 6,258 million. Propertize had no Tier-2 or Tier-3 capital. Of the eligible capital of 1,226 million at yearend 2013, expected losses in the amount of 725 million are deducted to arrive at the abovementioned Tier-1 capital. The 725 million deduction reflects the difference between the transfer value of the portfolio and the aggregate incurred loss recognised at 31 December 2013, net of tax. At the instruction of DNB, this amount is deducted from Tier-1 capital (so-called prudential filter). (In millions) 31 December 2013 Total Tier 1 capital 1,226 Dutch Central Bank prudential filter (725) Total own funds for Solvency purposes 501 Total Risk Weighted Assets (RWA) 6,258 Solvency ratio (%) 8.01% Capital requirement operational risk To calculate the capital that must be maintained as a buffer for the manifestation of operational risks, the standardised approach is used during 2013, as SNS REAAL used this approach. As of 2014 the basic indicator approach will be used by Propertize to calculate the capital required. The adequacy of the capital for operational risk is assessed every year. Capital adequacy In 2013, the capital adequacy of Propertize was assessed on SNS Bank level, as Propertize was part of SNS Bank. SNS Bank assesses its capital adequacy, amongst others, by conducting the Internal Capital Adequacy Assessment Process (ICAAP). In the ICAAP, the available own funds are compared to the capital requirements imposed by the regulatory authority (Regulatory capital) and on the basis of stress testing. As from 2014, Propertize is exempt from ICAAP assessment and reporting. 92 PROPERTIZE ANNUAL REPORT 2013

93 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Tailer-made reporting In anticipation of its separation of SNS Bank NV Propertize engaged in constructive dialogue with his stakeholders, including DNB, to develop a sustainable regulatory framework. In view of his unique situation Propertize is in need of a tailor-made framework. Accordingly, Propertize will file an application with DNB to withdraw its banklicense, after the adoption of these financial statements. Following Propertize s application DNB is expected to agree to withdraw Propertize s bank license, whilst simultaneously instructing Propertize to wind-down its remaining activities and operations in accordance with the provisions of section 1:104 paragraph 3 of the Dutch Financial Supervision Act. DNB will impose several conditions and instructions on Propertize, all aimed at ensuring that such winding-down takes place in an integer and controlled way for as long as the wind-down operations shall last, in accordance with (i) applicable laws and regulations, (ii) instructions previously provided by DNB, and (iii) the working arrangements provided by NLFI. The DNB instruction to wind-down Propertize s activities pursuant to aforementioned section 1:104 paragraph 3 of the Dutch Financial Supervision Act, ensures a tailor made DNB supervisory regime regarding Propertize s wind-down activities, enabling Propertize to wind-down its activities as currently contemplated. The main waivers and allowed deviations given by DNB in relation to the sustainable regulatory framework are: 2013: Country concentration risk report Sector concentration risk report Interest risk report Immobilia treshold Large exposures treshold As of 2014: The aforementioned waivers 2013 ICAAP assessment and reporting ILAAP assessment and reporting Basel III monitoring 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17.1 TANGIBLE FIXED ASSETS Propertize has no land and buildings in own use. The three floors in the Graadt van Roggenweg 500 are rented from SRLEV NV. Please refer to chapter Off balance sheet commitments. Specification tangible fixed assets (In millions) Land and buildings in own use - - IT equipment - - Other assets Total PROPERTIZE ANNUAL REPORT

94 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Statement of changes in tangible fixed assets (In millions) Accumulated acquisitions costs Accumulated amortisation and impairments (0.6) (0.4) Balance as at 31 December Balance as at 1 January Investments Divestments (0.0) (0.0) Depreciation (0.3) (0.3) Exchange rate differences (0.1) (0.0) Balance as at 31 December The other assets comprise the machinery and equipment of the Bonita Grande project in the USA, Florida State ( 1.5 million) and office equipment of Propertize ( 0.2 million) INVESTMENTS IN ASSOCIATES AND JOINT VENTURES The financial year of all material associates and joint ventures is consistent with the reporting date of Propertize. Specification of investments in associates and joint ventures (In millions) Associated companies Joint ventures Total Statement of changes in investments in associates and joint ventures (In millions) Balance as at 1 January Reclassifications Purchases and expansions Disposals and divestments (2.1) (1.9) Share in result of associates - - Revaluations Exchange rate differences Paid dividend Impairments (including reversals) 3.0 (12.8) Other movements (10.6) (0.0) Transfer assets held for sale Balance as at 31 December Overview most significant investments in associates 2013 (In millions) Country Interest Share Share Assets Liabilities Income in equity in result Kapelaansdijk I BV NL 25% Koppelenweg I BV NL 33.3% Zwarte Land CV NL 1.0% De Locht C.V. NL 1.0% ZOM City Place LP US 14.3% Oranje C.V. NL 1.0% Total PROPERTIZE ANNUAL REPORT 2013

95 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The Dutch entities in the table above relate to property for which Propertize has engaged in financial lease loan contracts. Subsequently, although Propertize holds less than 20% of the voting power, Propertize still holds legal title to the property, has a financial interest in the associates, certain veto rights on important decisions and the lessee has an unguaranteed option to purchase the property at the end of the lease term. Therefore management has concluded that Propertize has significant influence, however no control since the majority of the rewards and risks are transferred by Propertize to the lessee. Overview most significant investments in associates 2012 (In millions) Country Interest Share Share Assets Liabilities Income in equity in result Überseequartier Project BV DE 44.8% Prospect Village LP US 29.7% The Park at Brushy Creek Ltd US 11.7% (1) Koppelenweg I BV NL 33.3% Other Divers 1%-30% Total End of 2013, some shareholder loans of Propertize in Űberseequartier BV (USQ) were transferred into equity ( 8 million). As a result of this Propertize s share increased to 50%. A reassessment of the facts and circumstances in relation to power and the variability of returns led to conclude that Propertize had control of USQ (under IFRS standards). USQ was consequently derecognised as an associate and accounted for as a subsidiary as from September A total of 33 million (2012: 66 million) of loans was granted to associates. These are included under loans and advances to customers. At year-end 2013, the associates have no investment commitments (2012: nil). Overview most significant joint ventures 2013 Assets Liabilities Country Interest Share Share Current Non- Current Non- In- Exin in current current come penequity result ses Retail Fund North Holding B.V. NL 33% Alaska Building B.V. NL 28% LPM / BFP Holding VOF DE 50% Heyen Vastgoed Beleggingen BV NL 50% Homburg SNS Property Finance LP CA 50% Post-X-Change B.V. NL 50% Other Divers 15%-50% Total PROPERTIZE ANNUAL REPORT

96 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Overview most significant joint ventures 2012 Assets Liabilities Country Interest Share Share Current Non- Current Non- In- Exin in current current come penequity result ses Alaska Building B.V. NL 28% Retail Fund North Holding B.V. NL 33% Post-X-Change B.V. NL 50% Homburg SNS Property Finance LP CA 50% V.O.F. To Say Hello NL 25% LPM / BFP Holding VOF DE 50% Heyen Vastgoed Beleggingen BV NL 50% Other Divers 15%-50% Total The joint ventures have been granted a gross total amount of 440 million (2012: 759 million) of loans and advances. These are presented under the loans and advances to customers. At year-end the joint ventures have 46 million (2012: 46 million) investment commitments. Propertize exercises joint control of the joint ventures together with real estate development partners, without any unilateral control by one of the participants PROPERTY PROJECTS Specification property projects (In millions) Property projects (at cost) 1, Cumulative impairments / (reversals) as at 31 December (508) (394) Total Statement of changes in property projects (In millions) Balance property projects as at 1 January Reclassifications Additions and Foreclosures Disposals (23) (39) Impairments (158) (210) Exchange rate differences (4) (1) Other changes 2 14 Balance property projects as at 31 December The additions mainly concern gaining control (under IFRS standards) and subsequent consolidation of three projects, Űberseequartier Project BV (USQ) in Hamburg (Germany), New Babylon The Hague (the Netherlands) and a portfolio of residential property in the Netherlands. The property projects are mainly located in Western Europe. The WACC used to discount the estimated sales price at year-end 2013 is the WACC of Propertize (4.2%). In 2012 the WACC of SNS Bank was used (5%). 96 PROPERTIZE ANNUAL REPORT 2013

97 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 17.4 LOANS AND ADVANCES TO CUSTOMERS Specification loans and advances to customers (In millions) Property finance 6,379 7,555 Undrawn credits (35) 48 Outstanding loans (gross amount) 6,413 7,507 Provisions on loans 1,780 1,213 Total property finance (net) 4,633 6,294 Financial lease (gross) Provisions on loans 6 5 Financial lease (net) Total loans and advances to customers (net) 4,916 6,615 The undrawn credits line item is a net position. The amount of undrawn credits from customers is 71 million (2012: 153 million), against an amount of 106 million (2012: 105 million) of endorsed overdrawn. Of the 2013 undrawn credits from customers, an amount of 54 million cannot be drawn without prior approval of Propertize, as the underlying loans are in default. The property finance loans and financial leases are backed by collateral. Financial leases Overview maturities 2013 (In millions) < 1 year 1-5 year > 5 year Total Gross Unearned interest (10) (19) (8) (37) Net Overview maturities 2012 Gross Unearned interest (11) (24) (12) (47) Net The financial lease assets are included in the balance sheet as advances to customers of which the amount is equal to the net investment in the lease. The financial lease activities relate to the financing of property in the Netherlands. The amount of unguaranteed residual values (the value for which the lessee has a call option to purchase the asset at the end of the term of the lease) is 184 million (2012: million). In addition, some contracts include the option of the lessee to purchase the asset at the market value at the end of the term. The residual values are remeasured on a regular basis, together with the other property finance loans, and a provision for any shortfall is taken, if necessary. Statement of changes in loans and advances to customers (In millions) Balance as at 1 January 7,833 9,538 Consolidations and foreclosures (461) (174) Additions Redemptions (681) (1,582) Exchange rate differences (16) (1) Movement in current accounts (12) (7) Other movements - - Balance as at 31 December 6,702 7,833 PROPERTIZE ANNUAL REPORT

98 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Statement of changes in provision loans and advances to customers (In millions) Balance as at 1 January 1, Consolidations and Foreclosures (185) (34) Withdrawal (131) (128) Addition Release (128) (82) Other movements Balance as at 31 December 1,786 1,217 Consolidation and foreclosures resulted in a decrease of the provision; the loans and related provisions are subsequently recognised in the balance sheet under property projects. Withdrawals relate to the end of the term, transfer or sale of a loan, and subsequent derecognition of the related loan and provision on the loan. The net amount of Addition and Release ties-in with the related figure in the statement of comprehensive income, line item impairments. Please refer to section Impairments DEFERRED TAX ASSETS AND LIABILITIES Specification deferred tax assets and liabilities (In millions) Deferred tax assets 9 8 Deferred tax liabilities (249) (8) Total (240) (0) The deferred tax liability relates to the difference between the tax and accounting valuation of the loan portfolio and property projects portfolio. The future expected losses, of gross 967 million are non-tax deductible, as SNS Bank has taken these into the tax valuation prior to the deconsolidation of Propertize. Please also refer to section Taxation. Origin of deferred tax assets and tax liabilities 2013 (In millions) 1 January Change Other 31 through movements December profit or loss Loans and advances to customers (6) 0 (5) Provision for employee benefits Other 3 (241) (238) Total (0) (240) - (240) Origin of deferred tax assets and tax liabilities 2012 (In millions) 1 January Change Other 31 through movements December profit or loss Loans and advances to customers (5) (0) (6) Provision for employee benefits Other 5 (2) 3 Total (0) (0) - (0) 98 PROPERTIZE ANNUAL REPORT 2013

99 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Current tax assets and liabilities (In millions) Current tax assets and liabilities within fiscal unity 8 (210) Current tax assets and liabilities outside fiscal unity (0) (0) Total 8 (211) 17.6 OTHER RECEIVABLES Specification other receivables (In millions) Mortgage debtors Other receivables 4 14 Total Mortgage debtors comprise the (short-term) invoices issued to the clients in relation to the investment finance and financial lease portfolio. Other receivables consist of receivables from participants and tenants including any related provisions ( 6 million). There are no other receivables from related parties OTHER ASSETS Specification other assets (In millions) Accrued interest Other accrued assets Accrued assets Other taxation 5 10 Other advances Total In 2012, the shareholder loans of USQ in the gross amount of 48 million were included under other advances. The other taxes relate to VAT and social securities CASH AND CASH EQUIVALENTS Specification cash and cash equivalents (In millions) Cash and balances with other banks Total This item relates mainly to the free available bank balances of Propertize and her subsidiaries at SNS Bank in the amount of 175 million (2012: 183 million). The cash position at SNS Bank consists of 212 million receivables and 37 million liability. The restricted demand deposits amount to 8.6 million, relate to projects in North-America and Germany, and are not available for use in Propertize s day-to-day operations EQUITY Specification equity (In millions) Equity attributable to shareholders 1,226 (412) Minority interest - - Total 1,226 (412) The number of issued and paid-up shares is 50,003 with a nominal value of 1 per share. For further information on total equity, see paragraph 10.3 Consolidated statement of changes in total equity. PROPERTIZE ANNUAL REPORT

100 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE PROVISIONS Specification provision for employee benefits As the ABP pension scheme is treated as a defined contribution scheme, Propertize has no provision for post-employment benefits on the balance sheet. The obligation for holiday commitments (holiday allowance of the personnel at the end of the year not taken up) is presented under Other liabilities. The restructuring provision is disclosed in note Other provisions Specification other provisions (In millions) Restructuring provision 14 9 Total 14 9 Statement of change in other provisions Restructuring provision (In millions) Balance as at 1 January 9 5 Additions 6 6 Withdrawal (1) (2) Balance as at 31 December 14 9 The restructuring provision relates to the changed business model of Propertize, which is the optimisation of value and cash flows of the total portfolio in the wind-down of the total portfolio of both property finance loans and projects in a period of ten years, as from The timing of the usage of the provision in this ten-year period is uncertain, and depends on the developments in the wind-down of the property projects and property finance portfolio. As the wind-down is a certainty, Propertize has recognised a restructuring provision for all Propertize staff. The best estimate of the expenditure required is, inter alia, based on the number of staff, the expected time of the wind-down, the terms and conditions of the social plan and other constructive obligations arising from employee benefit contracts. The expected cash outflows are discounted at 3% (2012: 3%). The interest recognised of the unwinding of the discount on those expected cash flows is 0.2 million (2012: 0.1 million) AMOUNTS DUE TO BANKS Specification amounts due to banks (In millions) Loans 4,409 7,945 Total 4,409 7,945 The amounts relate to the short-term funding of Propertize by SNS Bank NV of 4,055 million (2012: 7,774 million), and other foreign banks 354 million (2012: 171 million). Of the 354 million, an amount of 27 million is due within one to five years; the remainder is shortterm. The State of The Netherlands has provided a maximum guarantee of 4,055 million with respect to loans that SNS Bank has provided to Propertize. Meanwhile this financing by SNS Bank to Propertize has been replaced with that from third parties in the form of Notes issued by Propertize under a Programme for the issuance of guaranteed (step compliant) Eurocommercial paper and guaranteed (non-step compliant) Medium Term Notes. For more information on this programme please refer to section 5.2 Funding and credit ratings in the annual report. 100 PROPERTIZE ANNUAL REPORT 2013

101 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT OTHER LIABILITIES Specification other liabilities (In millions) Trade creditors Un-earned interest income non consolidated participations Other liabilities (accruals and deferred income) Accrued interest 5 7 Total Un-earned interest income non-consolidated participations comprise the correction of interest income on loans to associates and joint ventures. Other liabilities comprise accruals and deferred income OFF BALANCE SHEET COMMITMENTS Contingent liabilities Guarantees Propertize has given guarantees to third parties in the amount of 35.8 million (2012: million). The decrease is related to the settlement of guarantees. Included in the guarantees is the guarantee that Propertize has issued to SNS Financial Markets as beneficiary for the guaranteed margin on the derivates that SNS Financial Markets has concluded on behalf of customers of Propertize. Duty of care A number of Propertize s customers has a property finance loan contract including variable interest. In addition, these customers closed a financial derivative contract with SNS Bank. Propertize has issued a guarantee to SNS Bank in relation to the payment requirements of this customer group after settlement of the derivative. In the context of the disentanglement of Propertize and SNS REAAL, agreements have been made concerning the settlement of the derivatives. The aforementioned guarantee of Propertize does not cover any payments to customers of possible duty of care issues in relation to the closed derivative contracts. To date, no agreements have been made between Propertize and SNS Bank on this subject Operational lease commitments In its daily operations Propertize has entered into operational lease commitments with: SRLEV NV / GVR Building 500 (rent of three floors and parking lots, Graadt van Roggenweg 500 in Utrecht). It concerns a 5-year contract. Propertize may decide to renew the lease for consecutive periods of 2.5 years at the end of the first term. The annual rent is 0.7 million. Services (cleaning, security etcetera) in relation to the rent of Graadt van Roggenweg year contract, with annual rent of 0.1 million. Car lease contract. The number of cars leased is approximately 40-45, annual total rent 0.5 million, with a 5-year contract (cancellable upon a penalty). The total amount of future minimum payments based on irrevocable operational leases amounts to 5 million, of which 1 million within one year, and the remainder between 1-5 years LEGAL PROCEEDINGS Nationalisation Various former holders of expropriated securities and capital components of SNS REAAL have initiated legal proceedings to seek compensation for damages in connection with the nationalisation of SNS REAAL. At the time of drawing up the financial statements, no court proceedings had (yet) been initiated against Propertize BV. Currently, it is not possible to make an estimate of the probability that possible legal proceedings of original holders or other parties affected by the nationalisation may result in liability, or the level of the financial impact on Propertize BV. For this PROPERTIZE ANNUAL REPORT

102 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE reason, at year-end 2013 no provisions have been made in respect of possible legal actions by holders concerning the expropriated securities and capital components of SNS REAAL and other affected parties. As the outcomes of possible legal proceedings cannot be predicted with certainty, it is not possible to rule out that a negative outcome could potentially have a material negative financial impact on the capital position, results and / or cash flows of Propertize BV Claims and legal cases Propertize is involved in legal proceedings. Although it is impossible to predict the result of pending or threatening legal proceedings, on the basis of information currently available and after consulting legal advisors, the Management Board believes that the outcome of these proceedings is unlikely to have any material adverse effects on the financial position or operating results of Propertize. A litigation provision is recognised for those claims and legal cases which are more likely than not (> 50%) to result in a possible outflow of economic benefits. Based on the assessment of the various litigation and arbitration proceedings, no litigation provision has been recognised at year end Legal costs in relation to the day-to-day operation of Propertize of the loans and advances and property projects are included in the estimated cash flow calculations underpinning the provisions of the aforementioned items. Irregularities The integrity investigation initiated in 2012 following signals of possible conflicts of interest and fraud by external members of staff of Propertize was continued in In this investigation the signals from forensic audits that had already commenced were also examined. The investigation comprises two components: 1 The signals relating to an alleged conflict of interest and irregularities regarding invoices and statements of expenses of external members of staff of Propertize; 2 A detailed investigation to establish whether any irregularities had occurred in respect of projects and divestments of Propertize. It concerns a risk-based selection of these projects and divestments based on the available signals. As a result of the investigation regarding the first component, within Propertize a number of irregularities were found to have occurred, resulting in the termination or non-renewal of the working relationship with 18 external members of staff, including one former director and several members of Propertize s management team. In consultation with Propertize, SNS REAAL reported in 2013 to the law enforcement authorities four instances of suspected criminal offences against several persons, including those apparently committed by one of the former directors of Propertize. Propertize is co-operating to the best of its ability with the law enforcement authorities and their investigation efforts, all this with due observance of the applicable legal framework and codes of conduct / professional codes. The investigation into a presumed conflict of interest, irregularities and malversation was led within SNS REAAL by Group Audit in close cooperation with Compliance and Security. For this purpose SNS REAAL engaged a number of professional external (forensic) parties so that the investigation could be performed as effectively as possible. The irregularities regarding invoices and statements of expenses have caused damages to Propertize. Various recourse actions are currently being contemplated. If these recourse actions end-up being successful, the proceeds will accrue to Propertize. Certain issues may still come to light during the investigation which will affect the valuation of the assets and liabilities of Propertize. As of 31 December 2013, when SNS Property Finance was spun off, the responsibility for the integrity investigation passed to Propertize. Propertize will complete the investigations concerned with utmost care. Claims Propertize is confronted with a number of claims. The most important ones are mentioned below. 102 PROPERTIZE ANNUAL REPORT 2013

103 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Nawon Nawon International Estates II BV, Nawon International Estates III BV and Nawon Holding BV. (hereafter: Nawon) announced Propertize in a letter dated 11 December 2012 that Nawon holds Propertize responsible for damage already and still to be suffered for an amount of around 50 million. On 31 January 2013, Nawon requested DNB to investigate this at Propertize. According to Nawon, Propertize, as a financer of Nawons German real estate portfolio, has violated its duty to care. On 26 February 2013, Propertize rejected all liability claims. Propertize has not yet received a subpoena from Nawon. Meanwhile, Nawon Holding BV has filed bankruptcy and the appointed trustee has asked the other Nawon parties to provide evidence supporting their alleged claims against Propertize. The counsel of Nawon provided the trustee with the requested support on 10 February On 18 February 2014 Propertize discussed matters with the trustee. The chances that the trustee will take on the claim of Nawon against Propertize seem unlikely as - in Propertize s view - there are no grounds for a liability claim. Union de Sociedad The Key en Colmar Group Spain Mr. R. Ras, a property developer who was involved with the construction and development of a number of Spanish real estate projects that are financed by Propertize, states to have a claim against Propertize for an amount of more than 408 million because of supposed damage suffered on these projects by the acts of Propertize. This claim is not supported with any arguments. On 10 January 2013, Mr. Ras showed NOS Television a Spanish payment request ( acto de conciliación ) addressed to Propertize, in which Propertize is summoned to appear before a Spanish judge in order to acknowledge the aforementioned amount is due. Till this day, Propertize has not yet received this payment request. Propertize strongly denies to be obligated to pay the amount of 408 million. As the status of this alleged claim has not changed since January 2013, Propertize considers the risk to be low. Belval One of Propertize s property projects is the project Belval Plaza in Luxembourg. Since the loans were not repaid as agreed, in 2009 Property Finance started to enforce its collateral, and as a result Belval Plaza is now fully controlled by Property Finance (and its subsidiary). Various (sub)contractors and suppliers started a legal procedure against the Belval Plaza companies for the payment of outstanding invoices and alleged compensation. To date, some disputes have been settled, withdrawn, or are still ongoing. Propertize is still strongly rejecting all remaining claims. Moreover, in the second half of March 2013, 14 tenants of the commercial centres Belval Plaza I Mall and Belval Plaza II issued a claim against the Belval companies and four subsidiaries of the SNS REAAL group (including Propertize) for alleged compensation of more than 16 million. To date, several tenants have already waived their claim, and with a few others waiver negotiations are in progress. The compensation amount was subsequently lowered to 13 million. Both parties have pledged their views on the matter to the court. No hearing date has been set by the court, as of yet. Finally, mid-april 2013, the Multiplan Group NV, SA Circle EU Holding, and Mr. C. van Erp, resident of Switzerland, requested the court in Utrecht for a preliminary hearing of witnesses. The request is aimed to hear more than thirty employees, former employees, external employees, managers and former managers of Propertize (and its legal predecessor) as well as third parties (subcontractors) regarding their involvement in the Belval project. On 11 September 2013 the court ruled against the parties making the request for a witness hearing. On 10 December 2013 van Erp c.s. appealed against the ruling of the court. Early March 2014 Propertize and its affiliated company PRPZ Financiering Participaties B.V. filed their statement of reply in the appeals case. PROPERTIZE ANNUAL REPORT

104 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Trustees of 2SQR Holding The trustees of 2SQR companies have indicated its intention to sue Propertize on the grounds of illicit actions and breach of contract. They claim that as a result of the actions of Propertize the 2SQR companies went bankrupt in The trustees have indicated that their claim relates to the entire asset shortfall of approximately 150 million. The amount claimed has not yet been substantiated in great detail. Propertize has indicated it will accept no responsibility. To date Propertize has not yet received the formal statement of claims. In February 2014, the trustees have challenged in court the termination with effect from January 1, 2014 by SNS REAAL NV and SNS Bank NV of their liability statement ( 403 verklaring ) as referred to in Book 2, Section 403 of the Dutch Civil Code for Propertize, and the withdrawal of SNS REAAL NV s and SNS Bank NV s remaining liability. In May 2014, the Utrecht court of first instance has issued an interim ruling, granting Propertize the possibility to bring into evidence its financial statements 2013 and allowing SNS REAAL and SNS Bank the possibility to present further arguments to reject the trustees challenge, based on such financial accounts Terminated external former members of staff A number of external members of Propertize s staff, whose contracts were terminated in connection with or as a result from the integrity investigation initiated in 2012 and continued in 2013 following signals of possible conflicts of interest and fraud by external members of staff at Propertize, have initiated legal proceedings against Propertize. Propertize is rejecting the claims made by these former members of staff RELATED PARTIES A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to Propertize include SNS REAAL, SNS Bank, NLFI with control, the Dutch State (Ministry of Finance) with significant influence, associates, joint ventures, managers in key positions and close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other related entities. Propertize has applied the partial exemption for government-related entities as described in IAS 24 paragraphs Propertize maintains various sorts of ordinary business relations with related companies and parties, particularly in the area of financing and the group staff departments of SNS REAAL. Transactions with related parties are conducted at arm s length, with the exception of transactions with the Dutch State Positions and transactions between Propertize, associated companies and joint ventures Associated companies Joint ventures Total (In millions) Positions Loans and advances (gross) Provision for impairment (10) (8) (244) (156) (254) (165) Loans and advances (net) Transactions Interest income Change in loans and advances (provision) (2) 14 (88) (67) (89) (53) In 2013, shareholder loans in Uberseequartier were converted into equity in the amount of 48 million. As a result of this, Propertize s share increased to 50%. Please refer to section 17.2 associates and section 24 Overview of principal subsidiaries. 104 PROPERTIZE ANNUAL REPORT 2013

105 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Positions and transactions between Propertize and SNS Bank (In millions) Positions Cash and cash equivalents Amounts due to banks 4,055 7,774 Other liabilities 5 15 Transactions Interest expenses The State of The Netherlands has provided a maximum guarantee of 4,055 million with respect to loans that SNS Bank has provided to Propertize. Immediately before the transfer of shares of Propertize from SNS Bank to the Dutch State, SNS Bank strengthened the capital position of Propertize with 725 million share premium. Please also refer to section 20.1 Guarantees of the Company financial statements Positions and transactions between Propertize and the Dutch State / NLFI As at 31 December 2013 NLFI is the sole shareholder of Propertize. The Dutch State transferred its share capital in Propertize BV to NLFI. NLFI issued exchangeable depositary receipts for shares to the Dutch State in return for acquiring and holding, in its own name, the share capital in Propertize BV. NLFI holds a total voting interest of 100% in Propertize. As sole holder of all issued exchangeable depositary receipts, the Dutch State holds an equal indirect interest in Propertize. NLFI is responsible for managing the shares and exercising all rights associated with these shares under Dutch law, including voting rights. However, material or principal decisions require the prior approval of the Dutch Minister of Finance, who will also be able to provide binding voting instructions with respect to such decisions. NLFI s objectives exclude disposing of or encumbering the shares, except pursuant to an authorisation from and on behalf of the Dutch Minister of Finance. Propertize has funding from SNS Bank in the amount of million that is guaranteed by the Dutch State. Immediately after the transfer of shares of Propertize from SNS Bank to the Dutch State, the State strengthened the capital position of Propertize with 500 million share premium Positions and transactions with managers in key positions of Propertize Managers in key positions comprise the members of the Management Board, the members of Propertize s Supervisory Board, and the members of the Executive Board of SNS REAAL NV and SNS Bank NV. This includes both current and former members. Specification remuneration managers in key positions Expenses Propertize Expenses SNS REAAL Total / SNS Bank in thousands Short-term employee benefits ,464 2,733 3,216 3,231 Post-employment benefits Other long-term benefits Termination benefits Total ,095 3,141 3,952 3,807 The amount of compensation paid for the services provided by Propertize s Supervisory Board, SNS Bank s Executive Board and the Executive Board of SNS Bank was not charged to Propertize, and is subsequently not accounted in the statement of comprehensive income of Propertize. PROPERTIZE ANNUAL REPORT

106 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE As it is impossible to relate the total compensation paid to the Executive Board members of SNS REAAL and SNS Bank to services rendered for Propertize, their total compensation has been included in the table above. Short-term employee benefits comprise the fixed salary including holiday allowances, contribution to health insurance and social security. Based on the Budget Agreement 2013 Tax Measures (Implementation) Act ( Wet uitwerking fiscale maatregelen Begrotingsakkoord 2013 ), Propertize pays a one-off crisis tax levy of 16% in 2014 of the salaries paid to its employees in 2013, to the extent that the salary per employee was more than 150,000. The crisis tax levy is also part of the short-term employee benefits. The total crisis tax levy for managers in key positions is 240 thousand (2012: 275 thousand). Post-employment benefits comprise the pension premiums paid by the employer less the member s contribution paid by the employee. Other long-term benefits relate to the remuneration based on a retention agreement with a member of the Management Board of Propertize. Termination benefits comprise the payment made in the context of a termination of the employment agreement of a member of the Executive Board of SNS Bank NV. No variable remuneration was paid to senior management in 2013 and Transactions with individual members of the Management Board and the Supervisory Board of Propertize are explained in section Remuneration report of the Report of the Supervisory Board. This information is part of the consolidated financial statements SUBSEQUENT EVENTS On 10 February 2014 Propertize started its funding programme. With four issues of Medium Term Notes (MTN) an amount of 2.6 billion was placed. The issue of Commercial Paper during the months of March and April 2014 has completed the funding programme. The bonds are listed on the Amsterdam and Luxemburg stock exchange. With the proceeds from the funding programme, the SNS Bank funding has been fully redeemed. For more information please refer to section 5.2 Funding and credit ratings in the annual report NET INTEREST INCOME (In millions) Interest income Interest expenses (118) (174) Net interest income The interest expenses include costs from banking activities incurred from borrowing and related transactions, as well as other interest-related charges. The recognised interest income on provisioned loans amounts to million (2012: 81.7 million) PROPERTY PROJECTS INCOME (In millions) Rental income Service charge income 5 5 Property projects income This item comprises the components Rental income and Service charge income on property projects. 106 PROPERTIZE ANNUAL REPORT 2013

107 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT OTHER INCOME This comprises the share in result of associates and joint ventures, result on financial instruments and other operating income. (In millions) Share in result of associates and joint ventures (0) (0) Result on financial instruments (4) (12) Other operating income Total other operating income Discounts on non-default loans account for 3.6 million in Exchange rate differences result in a profit in 2013 of 0.8 million (2012: 0.3 million loss). Other operating income comprises mainly the sales of property projects STAFF COSTS Specification staff costs (In millions) Salaries Pension costs 1 2 Social security 1 1 Temporary staff Other staff costs 3 4 Total Other staff costs consist largely of travel costs and training and education costs. The restructuring costs (additions minus releases) of the total staff of Propertize, is included in Salaries, for a total amount of 5.0 million (2012: 4.2 million). Transactions with individual members of the Management Board and the Supervisory Board of Propertize are explained in section Remuneration report of the Report of the Supervisory Board. This information is part of the consolidated financial statements. Number of FTEs at year-end Propertize Property Total Propertize Property Total projects projects Internal External Total at year-end External staff of Propertize as a percentage of total FTE decreased to 27.5% (2012: 32.9%), based on contractual hours. Pension costs Propertize s pension scheme by the Stichting Pensioenfonds ABP (ABP) is a defined benefit scheme. However, the ABP arrangement does not provide a consistent and reliable basis for charging the liability, mutual fund investments and costs of the scheme to individual employers taking part. That is why this pension scheme is treated as a defined contribution scheme for reporting purposes. ABP is a pension fund to which approximately 3,900 employers are affiliated, with over 2.8 million of participants. The annual premium amounts to 8.9 billion (employer and employee). ABP has all the risks for the obligations of the pensions. The premium is a so-called moderated cost coverage premium, including if necessary either surcharges to cover deficits or premium discounts to bring down excessive surpluses in the pension fund. PROPERTIZE ANNUAL REPORT

108 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE Set against this, Propertize s share in the ABP is marginal. Propertize s contribution to the ABP (employer part) is estimated at 2.0 million rounded for the year 2014 (2013: 1.4 million). The increase is related to the increase in personnel in OTHER OPERATING EXPENSES Specification other operating expenses (In millions) Cost of sales External advisors IT systems 3 6 Housing 2 3 Other costs Total The decrease in external advisor costs mainly relate to the forensic audits in relation to the irregularities at Propertize, for the most part conducted in 2012, and research into the property portfolio. In accordance with legislation, the other costs contain a charge for the banking tax ( 0.8 million) IMPAIRMENT CHARGES Specification impairment charges / (reversals) by class of asset (In millions) Impairments Reversals Total Impairments Reversals Total Investments in associates and joint ventures Property projects Loans and advances to customers 986 (128) (82) 718 Total through profit or loss 1,181 (128) 1,053 1,023 (82) 941 The tax deductibility of impairments depends on their nature, either being an impairment on a loan or an impairment on an investment TAXATION (In millions) Specification taxation In financial year (479) (208) Current tax assets and liabilities due (479) (208) Due to temporary differences Deferred tax Total (239) (208) Reconciliation between the statutory and effective tax rate (In millions) Statutory income tax rate 25% 25% Result before tax (1,063) (973) Statutory current income tax amount (266) (243) Other, mainly non-deductible expenses Total (239) (208) Effective tax rate 23% 21% 108 PROPERTIZE ANNUAL REPORT 2013

109 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The effective tax rate is lower than the applicable rate of 25% in the Netherlands due to the fact that a part of the results on associates are non-tax deductible. The negative result during the year causes the non-tax deductibility of part of this result to a lower effective tax rate instead of a higher one. In addition, taxes on losses in foreign subsidiaries that are outside the fiscal unity are not taken into account, as there is insufficient certainty that these losses will be compensated by future profits. With the transfer of the shares of SNS Property Finance, the fiscal unity with SNS REAAL was ended. As from 31 December 2013, Propertize BV, together with a major part of its Dutch subsidiaries, constitutes a fiscal unity for corporate income tax. For VAT purposes the fiscal unity started on 1 January All companies within the Dutch fiscal unity are jointly and severally liable for corporate income tax debts and VAT debts stemming from the fiscal unity. Up until the time of separation on 31 December 2013, Property Finance was part of the fiscal unity of SNS REAAL. Based on the advanced tax ruling with the Dutch Tax Authority, it was determined that the reduction in value of the portfolio ( 2.8 billion) that was used for its transfer, is directly and fully recognised for tax purposes. All financial relationships associated with tax between Property Finance and SNS REAAL were settled at year-end The final settlement with the tax authorities in previous years did not result in any tax payments of restitutions in 2012 and Propertize is no longer severally liable for the income tax losses of SNS REAAL after the disentanglement from the fiscal unity with SNS REAAL. Please also refer to section 17.5 Deferred tax assets and liabilities. 18 COMPANY FINANCIAL STATEMENTS 18.1 COMPANY BALANCE SHEET Company balance sheet Before result appropriation (In millions) Assets Cash and cash equivalents Loans and advances to customers 2 4,482 5,989 Investments in associates and joint ventures 1 1 Subsidiaries Receivables from subsidiaries Receivables from affiliated companies Other receivables Property projects 4 4 Deferred tax assets 8 7 Corporate income tax Other assets ,755 7,090 Equity and liabilities Amounts due to group companies Amounts due to banks 8 4,055 7,200 Deferred tax liabilities Corporate income tax 20 - Other liabilities Provision investments in subsidiaries Other provisions 14 9 Total liabilities 4,529 7,502 Issued share capital and share premium reserve 3, Other reserves (1,068) (303) Retained earnings (823) (765) Shareholder equity 11 1,226 (412) Total equity and liabilities 5,755 7,090 PROPERTIZE ANNUAL REPORT

110 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 18.2 COMPANY INCOME STATEMENT Company income statement (In millions) Result on subsidiaries after taxation (128) (108) Other results after taxation (695) (657) Net result for the period (823) (765) 18.3 PRINCIPLES FOR THE PREPARATION OF THE COMPANY FINANCIAL STATEMENTS Propertize prepares the company financial statements in accordance with the statutory provisions of Book 2, Section 402 of the Dutch Civil Code. Based on this, the result on associated companies after taxation is the only item shown separately in the income statement. Use has been made of the option offered in Book 2, Section 362 (8) of the Dutch Civil Code to use the same principles for valuation and the determination of the result that are used in the consolidated financial statements for the company financial statements. Reference is made to the Accounting principles for the consolidated financial statements. For additional information on items not explained further in the notes to the company balance sheet, reference is made to the Notes to the consolidated financial statements. The overview as referred to in Book 2, Sections 379 and 414 of the Dutch Civil Code has been filed with the Trade Register of the Chamber of Commerce of Utrecht. Subsidiaries are all companies and other entities in respect of which Propertize has the power to govern the financial and operating policies, whether directly or indirectly, and which are controlled by Propertize. The subsidiaries are accounted for using the equity method. Changes in balance sheet values due to the results of these subsidiaries, accounted for in accordance with Propertize accounting policies, are included in the profit and loss account. The distributable reserves of subsidiaries are included in other reserves. 19 NOTES TO THE COMPANY FINANCIAL STATEMENTS 19.1 CASH AND CASH EQUIVALENTS (In millions) Cash and balances with other banks Total LOANS AND ADVANCES TO CUSTOMERS Specification loans and advances to customers (In millions) Property finance 6,188 7,176 Undrawn credits (18) 75 Outstanding loans (gross amount) 6,206 7,101 Provision for impairment 1,724 1,112 Total loans and advances to customers (net) 4,482 5,989 Statement of changes loans and advances to customers (In millions) Balance as at 1 January 7,101 8,342 Consolidations and Foreclosures (461) (174) Additions Redemptions (461) (1,120) Exchange rate differences (1) 1 Movement in current accounts (12) (7) Balance as at 31 December 6,206 7, PROPERTIZE ANNUAL REPORT 2013

111 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Statement of change in provision loans and advances to customers (In millions) Balance as at 1 January 1, Consolidations and Foreclosures (149) (20) Withdrawal (90) (86) Addition Release (124) (72) Other movements Balance as at 31 December 1,724 1,112 The decrease is related to the regular redemptions ( 372 million), reclassifications to property projects ( 276 million, of which Babylon 148 million and USQ 14 million) and impairments ( 818 million). Of the total amount of 4,482 million, an amount of 310 million is due within one year. Breakdown by remaining maturity (In millions) < 1 month > 1 month < 3 months > 3 months < 1 year > 1 year < 5 years 2,060 2,753 > 5 years 2,112 2,842 Total 4,482 5,989 Breakdown portfolio Propertize by region in millions The Netherlands 3,775 4,967 Other Europe 711 1,026 Total net exposure 4,486 5,993 Property projects 4 4 Loans and advances to customers 4,482 5,989 Breakdown loans and advances by assets in millions Offices 1,986 2,287 Retail 1,135 1,251 - residential mortgages 1,057 1,238 - residential lease and development Residential 1,456 1,853 Industrial Other Gross outstanding loans secured 6,057 6,982 Unsecured loans Gross outstanding loans 6,206 7,101 Provision for impairment of loans and advances (1,724) (1,112) Total 4,482 5,989 PROPERTIZE ANNUAL REPORT

112 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 19.3 SUBSIDIARIES Specification subsidiaries (In millions) BPF Onroerend Goed Lease en Financieringen B.V B.V. De Haarlemsche Maatschappij voor Hypothecaire Financiering BPF Onroerend Goed Advies en Transacties B.V. 1 1 BPF Onroerend Goed Beheer B.V. 4 4 BPF Onroerend Goed Projecten B.V PRPZ Management B.V. 0 0 PRPZ Management II B.V. 0 0 Total Statement of change in subsidiaries (In millions) Balance as at 1 January Result (128) (108) Adjustment subsidiaries with negative equity book value Balance as at 31 December The adjustment subsidiaries with negative equity book value is the adjustment to the carrying amount in relation to Propertize s the share of losses in the subsidiary that exceeds the interest in the subsidiary. The recognition of these losses is explained in further detail in the next paragraph. If the losses in subsidiaries exceed the equity book value, the book value is set at zero, and a provision is taken on the loans and advances to these entities for the remaining amount of the loss, if any. If Propertize did not issue any loans to the subsidiary in question, or there is no current account with the subsidiary, a provision is recognised to the extent that Propertize is liable for the losses in the subsidiary RECEIVABLES FROM SUBSIDIARIES (In millions) PRPZ Interim Finance B.V BPF Onroerend Goed Lease en Financieringen B.V Woningportefeuille NL Divers B.V Überseequartier Project B.V B.V. De Haarlemsche Maatschappij voor Hypothecaire Financiering Other Total receivables from subsidiaries During 2012 PRPZ Interim Finance BV (PRPZ IF) and BPF Onroerend Goed Lease & Financieringen B.V. (OG L&F) had their own (partial) funding. As from 2013 Propertize is responsible for all funding, as a result of which the funding of the aforementioned two entities was replaced by funding from Propertize by means of current accounts. This resulted in an increase in PRPZ IF of 84 million and OG L&F of 182 million (receivable 279 million and debt 97 million). The receivables from subsidiaries concern current account balances, on which no interest is charged or recognised by Propertize. 112 PROPERTIZE ANNUAL REPORT 2013

113 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 19.5 RECEIVABLES FROM AFFILIATED COMPANIES (In millions) Babylon Den Haag B.V Balthazar I B.V Belval Plaza Holding S.A Other 9 44 Total receivables from affiliated companies The receivables from affiliated companies include corrections in relation to negative participations for an amount of 16 million (2012: 11 million) OTHER RECEIVABLES AND OTHER ASSETS The other receivables and other assets are all due within one year AMOUNTS DUE TO GROUP COMPANIES (In millions) BPF Onroerend Goed Beheer B.V. 4 4 BPF Onroerend Goed Lease en Financieringen B.V BPF Onroerend Goed Projecten B.V Other 0 0 Total amounts due to group companies During 2012 BPF Onroerend Goed & Financieringen B.V. (OG L&F) had its own (partial) funding. As from 2013 Propertize is responsible for all funding, as a result of which the funding of the aforementioned entity was replaced by funding from Propertize by means of current accounts. This resulted in a decrease of 97 million AMOUNTS DUE TO BANKS (In millions) Short-term loans 4,055 7,200 Total 4,055 7,200 The amounts due to banks are payable within one month. The decrease is related to the winding down of the portfolio, as well as the split-off from SNS Bank as at 31 December OTHER LIABILITIES Of the other liabilities an amount of 41 million has a maturity date of more than one year. FXswaps are included in the other liabilities ( 0.5 million). For more information on the notional amounts please refer to PROVISION INVESTMENTS IN SUBSIDIARIES (In millions) PRPZ Financiering Participaties B.V Total provisions investments in subsidiaries This balance sheet item has a direct link to the balance sheet item subsidiaries. Please refer to note For other provisions please refer to the section Provisions in the Notes to the Consolidated Financial Statements. PROPERTIZE ANNUAL REPORT

114 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE EQUITY Company statement of changes in equity (In millions) Issued Share Statutory Other Retained Equity share premium reserves reserves earnings attributable capital reserve associates to shareholders Balance as at 1 January (65) (243) 353 Transfer of net result (243) Transfers (243) Amounts charged directly to equity Net result (765) (765) Total result (765) (765) Transactions with shareholder (3) 3 Balance as at 31 December (306) (765) (412) Transfer of net result (765) Transfers (765) Amounts charged directly to equity Net result (823) (823) Total result (823) (823) Transactions with shareholder (2) 2, ,461 Other movements (0) - - Balance as at 31 December ,117 3 (1,071) (823) 1,226 Please refer to section 10.3 in the consolidated statements for more information ISSUED SHARE CAPITAL The number of capital issued is fully paid and comprises ordinary shares. The nominal value of the ordinary shares is 1. The number of issued shares as at 31 December 2013 is 50,003. Initial paid-in capital was 2.5 million (50,003 shares at 50). Specification issued share capital Number of shares Amount of shares Authorised share capital 50, ,000 50,003 12,500,000 Share capital in portfolio (199,997) (9,999,850) Issued share capital 31 December 50,003 50,003 50,003 2,500,150 On 31 December 2013 the number of authorised share capital (250,000, of which 199,997 not issued) was reduced to 50,003, the same as the number of issued and paid up shares. The nominal value of the shares, originally 50, was reduced to 1. As the reduction did not involve a return to the shareholders, the value was transferred to the share premium reserve. All shares are held by Stichting NLFI, a government-controlled agency managing the shareholdings in a number of nationalised Dutch financial institutions. There is only one class of ordinary shares. Propertize pursues a provision and dividend policy that is adopted and may be changed by the General Meeting of Shareholders. 114 PROPERTIZE ANNUAL REPORT 2013

115 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 20 OFF BALANCE SHEET COMMITMENTS 20.1 GUARANTEES Following the share transfer on 31 December 2013, SNS Bank NV withdrew the 403 declaration for Propertize on 31 December 2013 and initiated the proceedings provided for in Article 2:404 of the Dutch Civil Code to terminate the remaining liabilities. SNS Bank NV and SNS REAAL, respectively, also withdrew the 403 declarations for four subsidiaries of Propertize on 31 December 2013, and initiated the proceedings to terminate the remaining liabilities. In two specific instances a creditor has challenged such withdrawal of the 403 declaration and termination of the remaining liabilities. The final court ruling for these two cases is awaited. Propertize has provided guarantees as referred to in Book 2, Section 403 of the Dutch Civil Code for: B.V. De Haarlemsche Maatschappij voor Hypothecaire Financiering BPF Onroerend Goed Lease en Financieringen B.V. PRPZ Financiering Participaties B.V. PRPZ Interim Finance B.V OTHER OFF BALANCE SHEET COMMITMENTS For more information about the other off balance sheet commitments, please refer to section of the consolidated financial statements. 21 RELATED PARTIES Positions and transactions between Propertize and subsidiaries and affiliated companies (In millions) Receivables from subsidiaries Provision investments in subsidiaries (101) (85) Receivables from affiliated companies 1, Provision receivables from affiliated companies (830) (548) Income SUBSEQUENT EVENTS For more information about the subsequent events, please refer to section of the consolidated financial statements. PROPERTIZE ANNUAL REPORT

116 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE 23 AUDIT FEES In the financial year, the following fees of the audit firm KPMG Accountants NV and the other KPMG companies were charged to the organisation, its subsidiaries and other companies it consolidates, all this as referred to in Book 2, Section 382A of the Dutch Civil Code. Notes to the audit fees KPMG Other Total Accountants NV KPMG network in thousands Statutory audit of annual accounts, including the audit of the financial statements and other statutory audits of subsidiaries and other consolidated entities ,013 Other assurance services - Tax advisory services Other non-audit services - Total ,592 The costs in 2013 include the extra costs KPMG made because of the integrity investigations. Based on Book 2, Section 383A(3) of the Dutch Civil Code, reference is made to the 2012 financial statements of SNS REAAL for an overview of audit fees charged by KPMG Accountants NV and the Other KPMG member firms regarding the 2012 financial statements audit. Utrecht, 26 June 2014 Supervisory Board R.J. Meuter (Chairman) G. van Olphen M.B.G.M. Oostendorp Management Board H. Copier (Chairman) J.C.J. Mondt R.D.J. van Riel 116 PROPERTIZE ANNUAL REPORT 2013

117 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT 24 OVERVIEW OF PRINCIPAL SUBSIDIARIES An overview is provided below of Propertize BV s main subsidiaries. Participation in the subsidiaries is 100% unless stated otherwise. BPF Onroerend Goed Advies en Transacties B.V. BPF Onroerend Goed Beheer B.V. BPF Onroerend Goed Lease en Financieringen B.V. BPF Onroerend Goed Projecten B.V. B.V. De Haarlemsche Maatschappij voor Hypothecaire Financiering Hoevelaken Real Estate B.V. PRPZ Financiering Participaties B.V. PRPZ Interim Finance B.V. PRPZ Management B.V. PRPZ Management II B.V. PRPZ Participations Restructuring B.V. Belval Plaza Holding S.A. (50%) Other participations Heyen Vastgoed Beleggingen B.V. (50%) Koppelenweg I B.V. (33.3%) Hoevelaken Hoevelaken Hoevelaken Hoevelaken Haarlem Hoevelaken Utrecht Utrecht Utrecht Utrecht Utrecht Esch-sur-Alzette (Luxembourg) Naarden Hoevelaken PROPERTIZE ANNUAL REPORT

118 O IN TH M F E A O R TI R O N

119 Fragment of Zoggelpoort, Uden, part of the real estate owned portfolio of Propertize

120 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE OTHER INFORMATION 25 OTHER INFORMATION 25.1 PROVISION REGARDING PROFIT OR LOSS APPROPRIATION Result 2013: 823 million loss The loss appropriation will be determined in accordance with Propertize BV s Articles of Association applicable per 31 December Article The General Meeting has the right to appropriate the profit that was determined by adoption of the financial statements and to adopt distributions, with due observance of the adopted provision and dividend policy as referred to in Article 23.2 and the statutory limitations Propertize BV pursues a provision and dividend policy that is adopted and may be changed by the General Meeting. The Management Board can make a proposal to that effect with the approval of the Supervisory Board. The adoption of, and subsequent change to, the provision and dividend policy will be dealt with and recognised as a separate item on the agenda of the General Meeting The power of the General Meeting to adopt distributions applies to both distributions at the expense of profit not reserved and to distributions at the expense of any reserves, and to distributions on the occasion of the adoption of the financial statements and to interim distributions A resolution to make distributions will not have an effect as long as the Management Board has not granted its approval. The Management Board will only refuse to grant its approval if it knows or should reasonably foresee that Propertize BV will not be able to continue to pay its payable debts after making the distribution. Profit or loss appropriation The loss for the financial year 2013 is debited to the other reserves of Propertize BV INDEPENDENT AUDITOR S REPORT To: The Shareholder of Propertize BV Report on the financial statements We have audited the accompanying financial statements 2013 of Propertize BV, Utrecht, as included in chapters 10 to 24 of this report. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated balance sheet as at 31 December 2013, the consolidated statements of income, comprehensive income, changes in equity and consolidated cash flows for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at 31 December 2013, the company statement of comprehensive income for the year than ended and the notes, comprising a summary of the significant accounting policies and other explanatory information. 120 PROPERTIZE ANNUAL REPORT 2013

121 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT The Management Board s responsibility The Management Board is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the Report of the Management Board in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, the Management Board is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of Propertize BV as per 31 December 2013 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code. Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of Propertize BV as per 31 December 2013 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Netherlands Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the Management Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the Report of the Management Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Netherlands Civil Code. Amstelveen, 26 June 2014 KPMG Accountants N.V. P.A.M. de Wit RA PROPERTIZE ANNUAL REPORT

122 PILLAR III REPORT

123 Fragment of Belval Plaza, Luxembourg, part of the real estate owned portfolio of Propertize

124 PROPERTIZE IN BRIEF REPORT OF THE MANAGEMENT BOARD REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE PILLAR III REPORT 26 PILLAR III REPORT This is Propertize BV s report on capital adequacy and risk management in accordance with the legal disclosure requirements in EU s Capital Requirements Directive (CRD) as based upon the Basel II framework. The information contained in this section has not been audited by Propertize BV s external auditors. The report, together with the risk section in the Financial Statements of Propertize BV, presents the capital position and how the size and composition of the capital base is related to the risks as measured in Risk Weighted Assets (RWA). As a result of the choices made by Propertize, and its business model, the Pillar III disclosure information for the major part is presented in the Financial Statements (according to the IFRS principles), which are published once a year. Please refer to the risk section chapters 12 to 16 of the Financial Statements. Other, additional information is presented in this Pillar III section. The Basel II Directives apply to all banks in The Netherlands. This integral framework for bank supervision consists of three pillars, which are considered to reinforce each other: Pillar I: External capital requirements for the credit, market and operational risks; Pillar II: Internal processes for risk management and for the calculation of the internal capital requirements, the economic capital and the manner in which the regulator looks at these internal processes; Pillar III: Disclosure requirements to provide external stakeholders with risk information. Pillar III contains disclosure requirements to provide risk information to external stakeholders and supports the provision about the minimum solvency requirements (Pillar I) and the solvency requirements set by the management (Pillar II). The object of Pillar III is to improve the quality of an institution s risk management through the disciplining effect of the market. The Basel II legislation requires banks to keep a capital buffer so that they can cope with the risks occurring as a result of running a bank. Pillar I gives instructions for the calculation of the minimum capital that regulators require banks to maintain in order to cover the credit, market and operational risks. Methods of capital calculation The requirements provide for a number of methods of the capital calculation for these risks, ranging from simple (Standardised Approach/SA) to advanced methods. In certain conditions a bank has the option of choosing one of these methods. In view of its business model and strategy Propertize uses the SA method for its credit, operational and market risks. Of the Pillar I risks the credit risk is the most important risk category. The standardised approach measures credit risk pursuant to fixed risk weight. The application of risk weight in standardised approach is given by a set of fixed rules and is mainly based on the exposure class to which the exposure is assigned. The capital requirement for credit risk is based on the total finance loan exposure that Propertize has provided or is committed to provide. The solvency requirement for operational risk is based on the average proceeds over the last three years. 124 PROPERTIZE ANNUAL REPORT 2013

125 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Consolidation scope There is no difference between the consolidation scope of Propertize on IFRS basis and the consolation scope for regulatory purposes. Capital base The capital base (referred to as own funds in the CRD) is the sum of Tier 1 capital and Tier 2 capital after deductions. The main component in the capital base are core equity in the balance sheet. The calculation of capital base is done in accordance with the CRD and the Dutch legislation. The outcome must, as a minimum, correspond to the sum of the capital requirement for credit risks, market risks and operational risks and capital requirement related to transition rules. The capital ratio is calculated by dividing the capital base with risk weighted assets (RWA). The total equity of Propertize is classified as Tier 1 capital, which comprise the paid-up capital, share premium and eligible reserves. The eligible reserves consist of the retained earnings and income from the current year. Please refer to section 16.3 Capital and solvency position. Capital requirement The capital requirement at year-end 2013 was 501 million, divided into credit risk ( 489 million) and operational risk ( 11 million). Propertize has no trade book and so from a regulatory perspective there is no market risk for which a capital requirement applies. In the SA method, regulatory capital requirements for credit risks are calculated using the following formula: Capital requirement = RWA x 8%, where RWA = risk weight x EAD In the table below, the EAD (Exposure at Default / Exposure value), the risk weight and the capital requirement are presented according to the regulatory reporting. The EAD for the onbalance sheet items is 100% of the outstanding amount. The weighting percentages on credit risk are based on Basel II guidelines. The weighting percentages of items under the standardised approach depend on the counterparty s external credit risk. Generally, these percentages are 0% for loans and advances to, or guaranteed by OECD governments, 20% for loans and advances to, or guaranteed by OECD banks, 35% for loans not in default and a loan-to-foreclosure-value (LtfV) < 75%, 100% for the loans in default and a provision > 20%, and 150% for loans in default and a provision < 20%. PROPERTIZE ANNUAL REPORT

126 FINANCIAL STATEMENTS OTHER INFORMATION PILLAR III REPORT Capital requirements and risk weighted assets Risk weight Exposure RWA Capital value Requirement in millions Credit risk Standardised exposures classes: - Institutions 20% Secured by real estate 0% % % % 4,563 4, % Past due items 50% % Other items 0% % ,137 6, Market risk* - Standardised N/A N/A N/A Operational risk - Standardised Total 6,137 6, * Propertize has no trading book Further Disclosure to Regulation on Sound Remuneration Policies pursuant to the Financial Supervision Act 2011 In compliance with the requirements set out in the Policy Act and Regulation on Sound Remuneration policies pursuant to the Financial Supervision Act (Besluit & Regeling Beheerst Beloningsbeleid Wft 2011), i.e. the implementation of Pillar III disclosure requirements on remuneration, this section provides further information on Propertize s Senior Management and members of staff whose actions have a material impact on the risk profile of Propertize (Identified Staff). Identified Staff is determined on the basis of an internal specification of the Dutch Central Bank (DNB) criteria as outlined in its Open Book Supervision. The remuneration of Identified Staff meets the requirements of the Regulation on Sound Remuneration policies pursuant to the Financial Supervision Act 2011 (FSA 2011). Identified staff is not rewarded any variable remuneration. Until its separation on 31 December 2013, Propertize was a subsidiary of SNS Bank NV, which in turn is a subsidiary of SNS REAAL NV. As such the Identified Staff of Propertize were an integral part of the SNS REAAL Group and SNS Bank. Propertize has concluded therefore, and ascertained that the information on Propertize s Identified Staff has been included in the reports 2013 of SNS REAAL as well as SNS Bank. SNS Bank NV will issue a report on remuneration simultaneously with SNS REAAL NV s Group report on remuneration. This separate report will be made public on SNS Bank s website when available. SNS Bank NV s remuneration policy forms an integral part of SNS REAAL NV s Group remuneration policy. As such, it is fully derived from and aligned with all the procedures from this Group policy and accompanying actions. The report will display the 2013 remuneration for SNS Bank NV s senior management and members of staff whose actions have a material impact on the risk profile of SNS Bank NV (the other Identified Staff). 126 PROPERTIZE ANNUAL REPORT 2013

127 COLOFON Concept and design Ambitions, s-hertogenbosch Images Cover image: Fragment of Keesomstraat 36-44, Ede, part of the real estate owned portfolio of Propertize Real estate photography: Fotopersburo Dijkstra, Uithoorn Photography Management Board: Sjaak Ramakers, Utrecht Text Propertize, Utrecht Translation Courtesie, Almere

128 PROPERTIZE GRAADT VAN ROGGENWEG AH UTRECHT - POSTBUS AB UTRECHT T +31 (0) I PROPERTIZE.NL